Trading Statement & Drycleaning Strategy Review

RNS Number : 8480G

Johnson Service Group PLC

04 July 2012

 

                                                                                                            4 July 2012

Johnson Service Group PLC

Pre-Close Trading Statement and Drycleaning Strategy Review

Overall Group trading results for the first half of the year are expected to be in line with management's expectations with a continuing strong performance from Textile Rental and an encouraging performance from Facilities Management offsetting the impact of a like for like sales reduction in the Drycleaning business.

Textile Rental

Textile Rental, the largest part of the Group, has continued to perform well, with many of our existing large National customers renewing their contracts for a further three year term.  Sales to new customers have also been strong in the first half of the year and have more than offset the losses arising from business closures within our customer base, all of which has led us to make significant investment in new rental stock.

The integration of the Cannon Textile Care business, acquired in March, is proceeding extremely well and is on track to be fully completed by the end of September.  At the time we announced the proposed acquisition in January 2012, the Board expected the Cannon Textile Care business to have a net neutral impact on the adjusted operating profit for 2012 and to be accretive thereafter.  However, given the current progress of the acquired business, we now expect that, whilst loss making in the first half, the acquisition should make a small contribution in this financial year. Following the closure of four of the five acquired plants, the one remaining Cannon Textile Care plant, located at Newmarket, complements our existing national coverage and will provide us with welcome additional processing capacity.

Facilities Management

Overall the performance of the Facilities Management division has been in line with our expectations, with most parts of the business, particularly where there is medium to long term contracted revenue, performing well in the first half.  However, Technical Services activity, which relies upon capital projects mainly from our large retail customers and PFI Life Cycle works, has significantly reduced when compared to the first half of last year, although this has been compensated for by increases in our Property Services work and other service lines.

We are pleased with the performance of the Nickleby business, acquired in February 2012, and the integration with SGP continues to plan.

Drycleaning

The reduction in like for like sales experienced in the first four months of the year has continued with the total estimated like for like sales reduction for our retail Drycleaning business being 0.5% for the first half.

The Board has undertaken a strategic review of this business to ensure that it is well positioned to meet future challenges in the retail market.  The review concluded that the Group has a viable, profitable and resilient core Drycleaning business.  The recommendations of the review are to be implemented, and include:

·     The combination of Drycleaning and Textile Rental into a single Textile Services division.  Benefits will include a unified branding strategy, significant cost savings and greater co-operation on sales opportunities.

·     The closure of approximately 100 loss making shops by the year end from the present portfolio of 460 with a corresponding reduction in back office and field teams and a reduced requirement for the warehousing and distribution of consumables.  These shops experienced an estimated like for like decline of 2.7% in the first half (4.3% decline in the full year 2011) whereas the continuing shops were marginally positive (0.3% positive in the full year 2011).

·     A significant acceleration of dilapidation provisions which will increase flexibility on lease renewal.

The Board anticipates that the result for the Drycleaning division for the first half will be below both our expectations at the start of the current year and the result achieved in the prior year but the action taken will provide the basis for a stable platform with increasing profitability expected in future years.

Restructuring Cost

The estimated charge to the Group's income statement for the planned restructuring and property provisions relating to the Drycleaning business amounts to an aggregate £23.9 million, which will be treated as an exceptional item in the second half of 2012.  The estimated cost will, due to the timing of the decision to implement the strategy being after 30 June 2012, be reported as a post balance sheet event in the Interim Statement for the 6 months ended 30 June 2012.

Of the estimated charge, £3.7 million is non-cash and only £3.4 million is an additional cash requirement relating to the restructuring cost, as the balance is already contractually committed cash spend in the current and future years (including rent, rates, insurance and dilapidations) irrespective of the restructuring plan.  Accordingly, the Board does not expect the cash impact of the restructuring to affect the dividend policy or to increase the level of Group borrowings significantly.  In addition, the Board is confident that there is adequate headroom with respect to the terms of the bank facility and associated covenant ratios.

The anticipated taxation credit in respect of the exceptional cost above is estimated at £5.6 million.  It is not expected that any corporation tax payments in respect of 2012 will be made in the second half of this year or in the first half of 2013.

Net Debt

Net debt at the end of June is expected to be less than £58.0 million compared to £49.7 million at December 2011.  The increase is primarily due to the acquisition of the Cannon Textile Care and Nickleby businesses earlier in the year together with the related funding of working capital.

Board Changes

With immediate effect Chris Sander, who joined the Group in 1984 and was appointed to the Board in 2008, will assume the leadership of the enlarged Textile Services division.  Chris has successfully led the Textile Rental division over recent years and has delivered strong results in a difficult market.

Paul Ogle, the current Managing Director of the Drycleaning division, will now step down from the Board of Johnson Service Group PLC but will continue as Managing Director of the Drycleaning business within the enlarged Division.  This more focused role will enable Paul to concentrate on delivering the strategic plan for Drycleaning and we thank him for his contribution to the Board's deliberations over the last four years.

Outlook

The Board is pleased with the strong performance from the Textile Rental and Facilities Management businesses in the first half of the year as well as the progress being made in the integration of the recently acquired Cannon Textile Care and Nickleby businesses.  We remain confident in the outlook for the Group over the medium term.

We believe that the actions we have announced today will produce a robust Textile Services business, which is better able to withstand the changes in consumer demand and capitalise on opportunities available in the better locations.

John Talbot, Executive Chairman, commented:

"The restructuring is supported by strong trading and cash generation from the Textile Rental and Facilities Management businesses and we believe that the measures we have taken will refocus the Group into a more streamlined and profitable business.  We have confidence that our continuing Drycleaning estate will not only be able to withstand the current retail environment but make a telling contribution to the Group's future performance.  Textile Rental and Facilities Management continue to perform well and, following the integration of the two recent acquisitions, we are very optimistic about the future profitability of the Group."

The Group expects to release the results for the half year to 30 June 2012 on 4 September 2012.

Enquiries:

 

Johnson Service Group PLC
John Talbot, Executive Chairman
Yvonne Monaghan, Finance Director
Tel: [phone]
Investec Investment Banking (NOMAD)	Newgate Threadneedle
James Grace	Graham Herring
David Flin Cara Griffiths	John Coles
Tel: [phone]	Tel: [phone]

 

END

 

 

TSTKMGGNVFZGZZM