RNS Number:6670Z
Johnson Service Group PLC
13 March 2006
13th March 2006
Johnson Service Group PLC
Statement for the Financial Year to 31 December 2005
Johnson Service Group PLC, the textile related services and facilities
management Group announces its preliminary results for the financial year ending
31 December 2005.
Summary
* Corporatewear performing strongly with major sales wins and a good
pipeline of potential new customers in the UK and Europe
* Facilities Management demonstrating good organic growth following
significant contract wins
* Apparelmaster returns to organic revenue growth of 2% halting four years
of decline (2004: 5% decline)
* Weak consumer demand leads Drycleaning revenue down 2.7% on like for like
basis
* Eight acquisitions completed for #62.2m - strengthening our position in
higher growth and long term contractual business-to-business markets
* Final dividend proposed up 5% to 15.0p (2004: 14.3p)
* A preliminary approach has been received for the Drycleaning business that
may or may not lead to an offer being received
Simon Sherrard, Chairman of Johnson Service Group, commented:
"The Group remains focused on further developing its business-to-business
operations which have high levels of recurring revenues and real growth
potential. Our Corporatewear and Facilities Management businesses are performing
well in growth markets and conditions in the workwear rental sector are
improving. As previously indicated our Drycleaning business remains
unpredictable.
We are confident in the future of the Group and remain well placed to deliver
another satisfactory outcome for the year as a whole."
Financial Highlights
2005 2004 Change
Turnover #432m #364m 19%
Turnover (excluding costs recharged to customers) #364m #278m 31%
Profit Before Tax - UK GAAP #15.7m #15.4m 2%
Adjusted Profit Before Tax* - UK GAAP #27.9m #24.6m 13%
Profit Before Tax - IFRS #23.6m #21.8m 8%
Adjusted Profit Before Tax* - IFRS #28.1m #24.4m 15%
Final Dividend Proposed 15.0p 14.3p 5%
*Before restructuring and environmental costs, goodwill and intangible
amortisation and exceptional items.
www.johnsonplc.com
For further information, please contact:
Johnson Service Group PLC Hudson Sandler
Stuart Graham, CEO Michael Sandler
Jim Wilkinson, CFO James Benjamin
Tel: 020 7796 4133 (on the day) Sandrine Gallien
Tel: 020 7290 0390 (thereafter) Telephone: 020 7796 4133
PRELIMINARY STATEMENT
We are pleased to report a year of further progress for the Group. Particularly
strong performances by our newer Facilities Management and Corporatewear
businesses have helped us to achieve our financial objectives despite the impact
on Drycleaning of the weak retail market. We have also managed to stabilise and
grow our Apparelmaster garment rental business after several years of
industry-wide decline and we continue to see excellent growth from our
Stalbridge linen rental business.
Group results
The results for the year were in line with our expectations. Total turnover
grew by 19% to #432m (2004: #364m), while turnover, excluding costs recharged to
customers in our Facilities Management division, increased by 31% to #364m
(2004: #278m). Excluding acquisitions and costs recharged to customers,
underlying revenue rose by 4%.
The Group interest charge rose to #8.4m (2004: #5.5m), reflecting the #86m
expenditure on acquisitions, net of disposals, over the last two years.
As a result of our acquisitions, amortisation of intangible assets increased
substantially. We also incurred net exceptional costs of #0.6m (2004: #2.0 m);
these comprised restructuring costs of #4.0m; a #1.0m provision for
environmental and asbestos remediation work and exceptional income of #4.4m
relating to the gain on the sale of ten retail properties and a textile rental
facility. The restructuring expenditure arose as we integrated our acquired
businesses and rationalised back office functions. This restructuring has
already led to a saving of some #500k in 2005 and is expected to yield annual
savings of #1.3m from 2006. In addition we rationalised the number of premises
that Johnson Hospitality Services (JHS) trades from and incurred additional
costs as we integrated the business under the management of Stalbridge.
Under UK GAAP, Reported Profit Before Tax rose by 2% to #15.7m.
The Group has prepared its consolidated financial statements to 31 December 2005
under UK GAAP, supplemented with summary IFRS financial information, rather than
under IFRS as previously indicated. This is to comply with the Companies Act
1985 (as amended November 2004) and is a result of the current accounting year
commencing on 26 December 2004, i.e. prior to the IFRS adoption date of 1
January 2005. The only significant difference in the Group profit and loss
account is the treatment of amortisation of goodwill and intangibles. Therefore
the adjusted profit (before amortisation, restructuring and environmental costs
and exceptional items) under IFRS is nearly identical to that reported under UK
GAAP. Summary IFRS information has been included in note 17 to this preliminary
announcement. To aid comparability with our peers who will be reporting under
IFRS, the following numbers used in this commentary are IFRS based unless
otherwise stated.
Adjusted profit before taxation rose by 15% to #28.1m (2004: #24.4m) and
adjusted fully diluted earnings per share by 9% to 33.8 pence (2004: 30.9
pence).
Finances
In July we established a new #200m five year Revolving Credit Facility with a
syndicate of seven banks. This was agreed on more favourable terms than our
previous facility, which began to amortise at the end of June 2005.
The Group's net debt at the year-end was #137m (2004: #74m). This #63m increase
reflected our net cash spend on acquisitions of #56.2m, continuing capital
expenditure and a #3.4m rise in our working capital. Capital expenditure is
expected to continue at a substantial level through 2006, as previously advised,
but then decrease markedly as our major IT and building programmes are
completed. The interest charge was covered over four times by adjusted operating
profit.
Investment
During the year we spent #23.2m on fixed assets to enhance efficiency, introduce
new technologies and enlarge our capacity in markets with long-term growth
potential. Our largest single project is the #11m roll-out of an Enterprise
Resource Planning system, which is expected to be largely completed by the end
of 2006 on budget. This will give us a real competitive advantage by allowing us
to increase efficiency, reduce costs and ensure operational best practice across
the Group.
We also saw a marked increase in our rental stock expenditure, which rose to
#24.8m (2004: #19.4m). This increase was due to the high organic growth levels
experienced at our linen rental business, Stalbridge, together with the return
to growth of our workwear rental operation, Apparelmaster. Another sign of the
improvement in Apparelmaster's performance was that receipts from customers who
terminated their contracts fell to #3.5m (2004: #5.1m) as retention rates
improved.
Acquisitions
During the year we made eight acquisitions for a total value of #62.2m,
including deferred consideration. The acquisitions continued our strategy of
refocusing the Group towards markets which offer higher growth
business-to-business services, with strong recurring revenue streams, hence
reducing our exposure to our traditional and more volatile markets in garment
rental and drycleaning.
The two principal acquisitions made during the year were in the Corporatewear
and Facilities Management Divisions. At the start of the financial year we
acquired the DCC corporatewear business, focusing primarily on customers in the
financial services and leisure sectors, for a maximum consideration of #23.0m.
In October 2005 we bought SGP Property Services, providing white-collar
facilities management to the financial services, leisure and retail sectors, for
a maximum consideration of #24.8m. Other smaller acquisitions made during the
year were further bolt-ons to our Corporatewear and Facilities Management
Divisions and trade and asset purchases designed to strengthen Johnsons
Apparelmaster while reducing industry overcapacity in its market place.
All the acquisitions are meeting or exceeding our initial expectations.
Potential Disposal
We have received a preliminary approach for our Drycleaning Division that may or
may not lead to an offer being received.
Pension schemes
As previously reported in our Trading Update in January 2006, we face an
increased deficit in our pension schemes as a result of rising life expectancy
and lower corporate bond yields. Our main defined benefit scheme, the Johnson
Group Staff Pension Scheme, was closed to new entrants in 2002. However, the
normal triennial valuation was conducted during the year and this, updated in
December under FRS 17, has resulted in an #11.3m increase in the deficit
compared with that reported last year. This brings the net deficit after tax for
all our pension schemes to a total of #34.0m.
The two main sensitivities associated with the valuation of the scheme are
related to longevity assumptions and movements in the discount rate, both of
which are outside the control of the Group. A one year change in the longevity
assumed will alter the deficit by #5.0m whilst a 0.5% movement in the discount
rate will cause the deficit to change by #17m. The age assumptions used are that
women over 65 will live for 24 years whilst men will live for 21 years.
Dividend
The Board is recommending an increased final dividend of 15 pence per share
(2004: 14.3 pence). Together with the interim dividend of 4.4 pence paid in
October, this makes a total for the year of 19.4 pence (2004: 18.5 pence), a
rise of 5%. It is the Board's intention to continue to pursue a progressive
dividend policy while maintaining a prudent level of cover.
Operational Review
Rental
The Rental Division saw an increase in revenues of 13% (7% excluding
acquisitions), consisting of a welcome stabilisation in Johnsons Apparelmaster
revenues and continued strong growth from Stalbridge Linen Services. However
adjusted operating profit fell 7% as Johnson Hospitality Services underperformed
during the second half of the year with sales down 7%.
Johnsons Apparelmaster
Apparelmaster, the UK leader in the laundering and rental of workwear, has seen
several years of sales decline. Following significant management effort we have
achieved an improved business performance in 2005, with organic revenues
increasing by 2%. Total revenues rose 4% following the acquisition of customer
contracts from four small competitors who were exiting the market. This is the
first time in several years that we have achieved a stabilising in revenues, as
we contracted in line with a market that has suffered from the rapid decline in
UK manufacturing.
Strategically we have focused on developing our turnover with smaller and
medium-sized customers in response to particularly intense price competition for
large national accounts. This approach, together with continued investment in
our sales force and marketing plans has resulted in new business sales and
customer retention rates both improving. We have also sustained the rate of
investment made over the last two years in the people and infrastructure within
the business. This has enabled us to provide a high quality and efficient
service to our customers, while maintaining a low cost base. This action,
together with the acquisitions, has helped us to improve the total operating
profit margin from 13.3% to 13.9%.
It is expected that the operating profit margin will be under pressure during
2006 as the cost increases we are experiencing are unlikely to be totally
matched by price rises.
In January 2006 Rentokil Initial announced the closure of its UK linen and
workwear operations. We are actively marketing to the customers that it is
intending to stop servicing with some success. In addition, the processing
capacity that will be closing may help the industry achieve greater price
stability.
Stalbridge Linen Services and Johnson Hospitality Services (JHS)
Stalbridge again achieved excellent organic revenue growth of 28% in the premium
hotel, catering and corporate hospitality sector, where it is the clear market
leader. Total revenues increased by 46% following the strategic acquisitions of
businesses in Winchester and Essex, which increase our geographic coverage. The
operating margin decreased from 15.5% to 12.8% as expected, following the
acquisitions and the increased investment in operational and management
infrastructure required to support future growth. Further expansion is planned
in 2006, when we will begin construction of a new state-of-the-art laundry
facility in the East Midlands. Business has grown in all parts of the country,
supported by innovative marketing that is recognised as the best in the
industry, and by successful new product launches. Very high levels of customer
retention again complemented an exceptional new business sales performance.
Indeed, the company prides itself in its 'no contract' offering, based on our
confidence that customers will receive service levels far in excess of those
offered elsewhere.
JHS is the market leader in the provision of furniture and catering equipment to
the contract catering market. Following a disappointing trading performance
during the second half of the year JHS was merged under the Stalbridge
management team, though they remain as separate customer-facing brands. This
integration was designed to enhance service, maximise cross-selling
opportunities and realise operational and distribution efficiencies and cost
savings. The new management team is also working to develop a flexible cost base
that more appropriately reflects the seasonal pattern of demand. We also
embarked on a rationalisation of the JHS branch network, with three locations
closing in 2005 and a further closure planned in the current year, when we will
also be relocating the head office to new premises in Buckingham. We have
expanded and radically altered the JHS sales function to focus on the
business-to-business market, and to ensure that we leverage the strong
cross-selling opportunities with Stalbridge. We remain convinced that the
combined JHS and Stalbridge offering is a robust business model and we have
already seen an improvement in the performance of JHS in 2006.
Corporatewear
The Corporatewear Division saw revenue growth of 132% and adjusted operating
profit growth of 178% over the year, largely due to our acquisition activity
during 2004 and the start of 2005. Excluding the acquisitions we still saw good
organic revenue growth of 10%. The five acquired businesses complemented our
existing company, CCM, and achieved our aim of creating the UK's clear market
leader in the supply of high quality corporate clothing.
The market for corporatewear is continuing to grow strongly and has significant
further potential. Over half the workers in the US wear corporate uniforms. In
the UK penetration is under 40%, and on the Continent it is below 20%. As the
market leader in Britain and one of the largest suppliers in Europe, we are well
placed to exploit the development potential this affords.
Our strategy is to capitalise on the individual strengths of the various
businesses we have acquired, which all have strong brands and close customer
relationships built on specialist knowledge of distinct market sectors. This
enables us to provide our customers with the focus that they demand. At the
same time, we have been able to leverage our Group scale in worldwide sourcing
to reduce product costs and improve quality, while enhancing efficiency and
service levels through the integration of back office functions. These
efficiencies have seen the operating margin of the division increase from 11% to
13%. Management has been unified under a Corporatewear board to ensure that we
exploit potential synergies and cross-selling opportunities to the full.
All our brands achieved good organic growth during the year. Dimensions, which
is primarily focused on large, blue chip retail customers, has continued to
develop its enviable client list, which includes Tesco, Sainsbury's, Waitrose,
BAA, Marriott hotels, Marks & Spencer and Boots. DCC mainly serves the financial
services sector, where its clients include HSBC, Lloyds TSB and Royal Bank of
Scotland. Our workwear brand CCM, continued to exceed our expectations
achieving organic revenue growth of 7%.
We have also developed a public services offering with Yaffy, focusing on high
quality police outerwear, and Wessex, providing clothing for ambulance staff.
These were complemented by the #4.0m acquisition in April 2005 of Boyd Cooper, a
supplier of nurses' uniforms. All these businesses are performing well and are
benefiting from being part of a larger division.
Across the business we are experiencing good growth that reflects the strength
of these customer relationships and the high quality of our newer and more
comprehensive catalogue offering. Our skills in design and logistics enable us
to provide even the largest corporations with comprehensive management of their
clothing brand images. In addition, the substantially increased throughput
coupled with our procurement experience, is resulting in a saving of #3.0m per
annum in the sourcing of new garments. Many of these savings will be passed onto
customers, but together with our other skills they have contributed to a number
of notable business gains during the year, such as Group4Securicor, Post Office
Counters, Mothercare and Alliance Pharmacy. 2006 has started strongly with two
major pan-European contracts being secured as well as Virgin Atlantic Airways
and Focus being won as new customers.
Drycleaning
Our market-leading retail Drycleaning business, which operates under the
Johnsons, Sketchley and Jeeves brands, was affected by the general reduction in
consumer spending on the high street throughout 2005. Although overall revenue
rose 4% to #101m, we saw like for like shop sales fall by 2.7% during the year.
We took a range of actions to reduce costs, which resulted in the operating
margin of the retail business improving from 3.8% in the first half of the year
to 7.7% in the second half, without compromising quality.
During the year we opened 13 new concessions within Sainsbury's stores, and four
new drive-in sites at Sutton Coldfield, Plymouth, Winchester and St Austell. We
also acquired four independent shops and closed 31 underperforming branches,
giving us a total of 587 units at the year-end. A further 60 branches were
converted to the environmentally friendly GreenEarth(R) cleaning process during
the year, extending the technology to 230 locations.
Our Priority Club is continuing to expand and at the year-end reached a total of
520,000 active members. In the final months of the year we began a co-ordinated
marketing drive designed to increase customer numbers and the frequency of their
visits.
Following a full staff survey and independent consumer research, comprehensive
change plans have been developed to raise the profile of our shops and further
improve the effectiveness of our marketing. We have also begun trialling a
range of innovative services designed to enhance our convenience to customers,
including 24-hour drop-off boxes for depositing drycleaning, and a home and
office collection and delivery service. In line with this strategic priority,
the focus of our future branch opening plans will be on the acquisition of
highly accessible and convenient drive-in sites.
The trading performance of Jeeves of Belgravia, our luxury brand, steadily
improved during the year as we began to see the results of increasing customer
recognition of our investment in both technology and people. We are confident
that further improvements will be achieved in the current year, when we plan to
launch an exciting new brand design.
Alex Reid, our business which is the leading supplier of consumables to the
drycleaning industry, performed well in holding revenue and profits steady
despite the tough market conditions experienced during the year. In August 2005
we strengthened the business by acquiring Firbimatic UK, a market leader in the
supply and servicing of machinery and ancillary equipment. Excellent progress
has been made in developing cross-selling opportunities and capitalising on the
synergies available.
As the European Master Licence holder, Alex Reid has actively promoted the
operational and marketing advantages of the environmentally preferable
GreenEarth(R) cleaning system process to drycleaners across the EU. Although
poor market conditions have limited investment by potential customers, sales
were encouraging in the latter part of the year.
In addition to the trading activities outlined above, the Drycleaning segmental
results include #1.8 m (2004: #1.4 m) of profit from the disposal of freehold
properties and other non-trading income. A similar income is expected during
2006.
The Drycleaning business benefits from a property portfolio that extends to
around 90 freehold sites. If these sites were leasehold and charged at a market
rent to the division, the operating profit of the retail business would be
approximately #1.6 m (2004: #1.7 m) lower.
Facilities Management
Organic revenue growth of 5% was supported by the acquisitions of SGP Property
Services (SGP) in October and by Acame in January. These helped our Facilities
Management Division grow total revenues (excluding costs recharged to customers)
by 57% and adjusted operating profit by 144%, with the margin moving from 6.1%
to 9.4%.
SGP specialises in the provision of property management services to the
financial, leisure and retail sectors, ideally complementing Johnson Workplace
Management (JWM) our existing facilities management business, which is focused
primarily in the commercial office market. Both share the 'white collar' model
of facilities management, subcontracting lower-value commodity services. The
acquisition gives us significantly enhanced scale in this market enabling us to
offer a more complete service to potential customers.
There is already an encouraging new business pipeline with both existing and
potential new clients. This is aided by the current retail downturn, which is a
positive environment for selling the outsourced services that we offer. Although
we will exploit the synergies available in procurement we intend to maintain the
distinctive strengths of our two customer-facing brands.
JWM has achieved good organic revenue growth of 5% with a number of new
three-year contracts being recently awarded by existing clients in the
pharmaceuticals, electronics and telecoms sectors. We have also gained a number
of new clients in both the public and private sectors. At the same time, we have
again been successful in reducing costs through the delivery of improved
operational efficiencies.
Workplace Engineering is our new brand for the delivery of hi-tech electrical,
engineering and project fit-out services. It brings together two recently
acquired businesses, Ace (Ascot) and Acame, both of which achieved significant
growth in 2005 through a combination of open market tenders and referrals from
JWM. Their integration has now been completed, providing further efficiencies
and cost savings and enabling us to take full advantage of the continuing
opportunities in this buoyant sector.
Outlook
The Group remains focused on further developing its business-to-business
operations which have high levels of recurring revenues and real growth
potential.
Our textile offering is comprehensive and unique, while our expanded Facilities
Management activities now cover both the commercial and retail sectors. The
strong business model we have developed allows us to exploit the cross-selling
opportunities that exist within and between our core activities and to deliver
sustained growth to the top and bottom line.
With our Corporatewear and Facilities Management businesses performing well in
growing markets and with improving conditions in the workwear rental sector we
are confident in the future of the Group.
Trading conditions for our retail Drycleaning business remain unpredictable. The
approach for the Drycleaning business remains preliminary and an offer may or
may not be received.
Subject to the comments above, we remain well placed to deliver another
satisfactory outcome for the year as a whole.
JOHNSON SERVICE GROUP PLC
CONSOLIDATED PROFIT AND LOSS ACCOUNT - UNAUDITED
Note YEAR ENDED YEAR ENDED
31st DECEMBER 25th DECEMBER
2005 2004
#m #m
Restated
2 TURNOVER
Continuing 390.6 364.0
Acquisitions 41.3 -
TOTAL TURNOVER 431.9 364.0
Costs recharged to customers (68.4) (86.0)
2 Turnover excluding costs recharged to customers 363.5 278.0
2 OPERATING PROFIT BEFORE RESTRUCTURING AND ENVIRONMENTAL COSTS AND
GOODWILL AMORTISATION
Continuing 29.9 30.1
Acquisitions 6.4 -
TOTAL 36.3 30.1
3 Restructuring and Environmental costs (5.0) (2.0)
Amortisation of goodwill (11.6) (7.2)
OPERATING PROFIT
Continuing 16.2 20.9
Acquisitions 3.5 -
TOTAL 19.7 20.9
4 EXCEPTIONAL ITEMS
Profit on disposal of property 4.4 -
PROFIT ON ORDINARY ACTIVITIES BEFORE INTEREST 24.1 20.9
Net interest (8.4) (5.5)
2 PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION 15.7 15.4
6 Tax on profit on ordinary activities (6.5) (6.3)
PROFIT ON ORDINARY ACTIVITIES AFTER TAXATION 9.2 9.1
7 Dividends (11.4) (10.6)
LOSS FOR THE FINANCIAL YEAR (2.2) (1.5)
5 ADJUSTED PROFIT BEFORE TAX (EXCLUDING RESTRUCTURING AND 27.9 24.6
ENVIRONMENTAL
COSTS, GOODWILL AMORTISATION AND EXCEPTIONAL ITEMS)
RATES OF DIVIDEND PER SHARE
Ordinary shares of 10p each:-
Interim - paid 4.4p 4.2p
Final - paid - 14.3p
Final - proposed 15.0p -
8 EARNINGS PER SHARE
BASIC 15.7p 15.9p
FULLY DILUTED 15.4p 15.6p
ADJUSTED EARNINGS PER SHARE
BASIC 34.3p 30.8p
FULLY DILUTED 33.6p 30.2p
CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES #m #m
Profit on ordinary activities after taxation 9.2 9.1
Actuarial (loss)/gain on defined benefit schemes (15.7) 0.2
Taxation in respect of actuarial loss on defined benefit schemes 4.7 -
Total recognised gains and losses for the year (1.8) 9.3
1 Prior year adjustment - adoption of FRS 17 (25.4)
1 Prior year adjustment - adoption of FRS 20 0.4
Total gains and losses recognised since last annual report (26.8)
JOHNSON SERVICE GROUP PLC
CONSOLIDATED BALANCE SHEET - UNAUDITED
31st DECEMBER 25th DECEMBER
2005 2004
#m #m
Restated
FIXED ASSETS
Intangible fixed assets - Goodwill 156.0 111.4
Tangible fixed assets:
Property, plant and equipment 77.6 68.3
Rental items 30.1 24.5
Total 107.7 92.8
263.7 204.2
CURRENT ASSETS
Stocks 30.2 19.8
Debtors: Amounts falling due within one year 64.9 54.1
Amounts falling due after more than one year 0.1 0.2
65.0 54.3
Cash at bank and in hand 7.5 4.5
102.7 78.6
CURRENT LIABILITIES
Creditors:
Amounts falling due within one year (100.0) (88.0)
NET CURRENT ASSETS/(LIABILITIES) 2.7 (9.4)
TOTAL ASSETS LESS CURRENT LIABILITIES 266.4 194.8
Creditors:
Amounts falling due after more than one year (148.6) (78.1)
PROVISIONS FOR LIABILITIES AND CHARGES (12.2) (12.3)
PENSION AND OTHER RETIREMENT BENEFIT (35.3) (23.9)
LIABILITIES (NET)
NET ASSETS 70.3 80.5
CAPITAL AND RESERVES
Called-up share capital 5.9 5.8
Share premium account 11.9 9.5
Revaluation reserve 6.3 8.0
Other reserves 2.1 2.1
Profit and loss account 44.1 55.1
EQUITY SHAREHOLDERS' FUNDS 70.3 80.5
JOHNSON SERVICE GROUP PLC
CONSOLIDATED CASH FLOW STATEMENT - UNAUDITED
Note YEAR ENDED YEAR ENDED
31st DECEMBER 25th DECEMBER
2005 2004
#m #m
Restated
9 NET CASH INFLOW FROM OPERATING ACTIVITIES 53.2 44.9
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
Interest paid (net) (6.5) (4.2)
Issue costs on new bank loans (0.9) -
NET CASH OUTFLOW FROM RETURNS ON INVESTMENTS (7.4) (4.2)
AND SERVICING OF FINANCE
TAXATION
Tax paid (net) (6.2) (5.8)
CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT
Payments to acquire tangible fixed assets - property, plant and equipment (23.2) (6.4)
Receipts from sales of tangible fixed assets - property, plant and equipment 11.5 1.5
Payments to acquire tangible fixed assets - rental items (24.8) (19.4)
Proceeds from tangible fixed assets - rental items withdrawn from circulation 3.5 5.1
NET CASH OUTFLOW FOR CAPITAL EXPENDITURE AND
FINANCIAL INVESTMENT (33.0) (19.2)
FREE CASH FLOW 6.6 15.7
ACQUISITIONS AND DISPOSALS
10 Payments to acquire businesses (58.0) (32.5)
10 Cash balances acquired with businesses 1.8 1.3
Receipts from disposal of businesses - 1.1
NET CASH OUTFLOW FROM ACQUISITIONS AND DISPOSALS (56.2) (30.1)
EQUITY DIVIDENDS PAID (10.8) (10.2)
CASH OUTFLOW BEFORE FINANCING (60.4) (24.6)
FINANCING
Issue of Ordinary share capital 2.5 1.7
Debt due in more than one year:
Loans repaid (116.2) (0.3)
New loans advanced 178.2 26.0
Capital element of payments under finance arrangements (1.1) (0.5)
NET CASH INFLOW FROM FINANCING 63.4 26.9
11 INCREASE IN CASH IN THE FINANCIAL YEAR 3.0 2.3
NOTES TO THE PRELIMINARY ANNOUNCEMENT
1. Changes in Accounting Policies
The financial information within this preliminary announcement has been prepared
on the basis of the accounting policies stated in the Group's statutory accounts
for the year ended 25th December 2004, except as outlined below. The
preliminary results should therefore be read in conjunction with the 2004 annual
report.
The Group has changed its accounting policy in respect of share-based payments
to comply with the provisions of FRS 20, Share-based Payments. The standard
requires that the fair value of share-based payments be recognised as an expense
in the profit and loss account over the period of service to which the award
relates. In accordance with the transitional rules of FRS 20, the Group has
applied the requirements of the standard to awards granted after 7 November 2002
that had not vested by 26 December 2004.
The Group has also changed its accounting policy in respect of pensions and
other retirement benefits to comply with the provisions of FRS17, Retirement
Benefits. The standard requires the assets and liabilities of defined benefit
retirement plans to be shown in the balance sheet, service costs and expected
interest on plan assets and liabilities to be shown in the profit and loss
account and changes in actuarial assumptions and movements on scheme assets and
liabilities to be shown in the statement of total recognised gains and losses.
Consequently, the Group has made the following adjustments in respect of 2004:-
Year ended 25th December 2004 Operating Profit Profit Before Profit Shareholders' Funds
Taxation After Taxation
#m #m #m #m
FRS 20 - Share-based Payments (0.2) (0.2) (0.3) 0.4
FRS 17 - Retirement Benefits 0.7 (0.1) (0.1) (25.4)
Total Prior Year adjustment 0.5 (0.3) (0.4) (25.0)
Earnings per share for the year ended 25th December 2004 have also been
restated.
For the year ended 31st December 2005, the adoption of FRS 17 and FRS 20 has
increased operating profit by #0.3 million and reduced profit before taxation by
#0.7 million.
2. Segmental Information - Analysis of Turnover, Operating Profit
Before Restructuring and Environmental Costs and Goodwill Amortisation and
Profit Before Taxation
Turnover Turnover Excluding
Costs Recharged to
Customers
2005 2004 2005 2004
#m #m #m #m
Restated Restated
CONTINUING
Rental 128.4 113.3 128.4 113.3
Corporatewear 87.1 37.6 87.1 37.6
Drycleaning 101.4 97.4 101.4 97.4
Facilities Management 115.0 115.7 46.6 29.7
431.9 364.0 363.5 278.0
Operating Profit before Restructuring Profit before
Environmental Costs and and Taxation
Amortisation Goodwill
2005 2004 2005 2004
#m #m #m #m
Restated Restated
CONTINUING
Rental 15.2 16.4 11.5 13.6
Corporatewear 11.4 4.1 5.0 2.6
Drycleaning 9.8 10.8 10.2 7.3
Facilities Management 4.4 1.8 2.0 0.4
Unallocated costs (4.5) (3.0) (4.6) (3.0)
36.3 30.1 24.1 20.9
Interest (8.4) (5.5)
PROFIT BEFORE TAXATION 15.7 15.4
Segmental information for 2005 includes the following in respect of
acquisitions:-
Turnover Operating Profit before Operating Profit
Restructuring and
Environmental Costs and
Goodwill Amortisation
#m #m #m
Rental 6.3 0.9 0.1
Corporatewear 24.6 3.9 2.3
Drycleaning 2.7 0.3 0.2
Facilities Management 7.7 1.3 0.9
41.3 6.4 3.5
The basis of the segmental analysis has been revised to show unallocated central
overheads separately, and to include the results of Alex Reid within
Drycleaning. 2004 has been re-analysed accordingly. The operating profit before
restructuring and environmental costs and goodwill amortisation, and profit
before taxation from Drycleaning includes #1.8 million (2004: #1.4 million) of
profit from the disposal of properties formerly occupied by the drycleaning
business and other non-trading items. Of the exceptional items arising in 2005,
#2.1 million has been included in the Rental segment and #2.3 million included
in the Drycleaning segment in the analysis of Profit before Taxation.
Turnover from continuing operations originates in the United Kingdom. There is
no material difference between turnover by origin and by destination.
Facilities Management turnover comprises fees receivable and costs recharged to
customers where the relationship with the supplier of services is that of
principal. The element of turnover which comprises supplier costs recharged to
customers has been shown separately in the profit and loss account to aid
interpretation of the business.
3. Restructuring and Environmental Costs
Year ended Year ended 25th
31st December December
2005 2004
#m #m
Restructuring costs 4.0 2.0
Environmental costs 1.0 -
5.0 2.0
Restructuring costs are in respect of the reorganisation of the operation and
management of recently acquired businesses into the Group's divisions, and
comprise largely of redundancy costs and the write-off of fixed assets. The
environmental costs relate to a provision for the anticipated environmental
remediation cost of vacating an existing site and asbestos clean-up.
4. Exceptional Items
Year ended Year ended
31st December 25th December
2005 2004
#m #m
Profit on disposal of property assets 4.4 -
Property disposals relate to the gain on disposal of a small group of trading
properties and a textile rental facility.
5. Adjusted Profit Before Tax
The reconciliation of profit before tax and adjusted profit before tax is as
follows:-
Year ended Year ended
31st December 2005 25th December 2004
#m #m
Restated
Profit on ordinary activities before taxation 15.7 15.4
Add goodwill amortisation 11.6 7.2
Add restructuring and environmental costs 5.0 2.0
Less exceptional items (4.4) -
Adjusted profit before taxation 27.9 24.6
6. Taxation
Year ended Year ended
31st December 25th December 2004
CURRENT TAX 2005 #m
#m
UK corporation tax charge for the year 6.3 6.0
Adjustment in relation to previous years (0.1) (0.8)
Current tax charge for the year 6.2 5.2
DEFERRED TAX
Origination and reversal of timing differences 0.3 0.5
Adjustment in relation to previous years - 0.6
Deferred tax charge for the year 0.3 1.1
Total charge for taxation 6.5 6.3
The tax relief on the restructuring and environmental costs incurred in the
current year has reduced UK corporation tax by #1.2 million (2004: #0.6
million). The tax relief on goodwill amortisation has reduced UK corporation
tax by #0.2 million (2004: #0.1 million).
There is no taxation on the exceptional item disclosed in note 4.
7. Dividends
Year ended Year ended
31st December 2005 25th December 2004
#m #m
Ordinary shares at 19.4p (2004: 18.5p) per share 11.4 10.6
On 21st October 2005 an interim dividend of 4.4p was paid on the Ordinary
shares. A proposed final dividend of 15.0p, will be paid on 15th May 2006 to
Shareholders on the register of members on 18th April 2006. The Trustee of the
ESOP has waived the entitlement to receive dividends on the Ordinary shares held
by the Trust.
8. Earnings Per Share
Year ended Year ended
31st December 2005 25th December 2004
#m #m
Restated
Profit on ordinary activities after taxation 9.2 9.1
Less profit on exceptional items (net of taxation) (4.4) -
Add restructuring and environmental costs (net of taxation) 3.8 1.4
Add goodwill amortisation (net of taxation) 11.4 7.1
Adjusted profit attributable to Ordinary Shareholders 20.0 17.6
Weighted average number of Ordinary shares 58,208,126 57,419,393
Fully diluted number of Ordinary shares 59,357,348 58,492,266
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 on ordinary activities after taxation.
Adjusted earnings per share figures are given to exclude the effects of
restructuring costs, goodwill amortisation 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.
9. Reconciliation of Operating Profit to Net Cash Inflow from
Operating Activities
Year ended Year ended
31st December 2005 25th December 2004
#m #m
Restated
Operating profit 19.7 20.9
Depreciation 27.5 22.2
Amortisation of goodwill 11.6 7.2
Profit on sale of tangible fixed assets (1.9) (0.4)
Charge for share options 0.5 0.3
Difference between retirement benefit charge and cash paid (0.3) (0.6)
Increase in current assets (6.3) (4.6)
Increase in creditors 2.9 0.7
Adjustment in respect of provisions (0.5) (0.8)
Net cash inflow from operating activities 53.2 44.9
10. Acquisitions
Year ended Year ended
31st December 2005 25th December 2004
#m #m
Purchase of Businesses
Payments to acquire businesses 58.0 32.5
Cash and overdraft balances acquired with businesses (1.8) (1.3)
Net cash consideration 56.2 31.2
Acquisitions were completed during the year for net cash consideration of #54.0
million, and deferred consideration of #6.4 million, generating goodwill of
#56.0 million. In addition deferred consideration of #2.2 million in respect of
acquisitions completed in earlier years was paid.
11. Reconciliation of Net Cash Flow to Movement in Net Debt
Year ended Year ended
31st December 2005 25th December 2004
#m #m
Restated
Increase in cash in year 3.0 2.3
Cash (inflow) on change in debt and lease financing (60.9) (25.2)
Change in net debt resulting from cash flows (57.9) (22.9)
Finance leases - new (0.7) (5.1)
Issue costs of new bank loans 0.9 -
Amortisation of issue costs of bank loans (0.1) (0.1)
Issue of loan notes - (2.3)
Loans and leases acquired with subsidiaries (5.1) (0.3)
Movement in net debt in year (62.9) (30.7)
Opening net debt (74.1) (43.4)
Closing net debt (137.0) (74.1)
12. Analysis of Net Debt
Acquisitions
At (Excluding Cash Other At
25th December Cash and Non-cash 31st December
2004 Flow Overdrafts) Changes 2005
#m #m #m #m #m
Cash in hand and 3.0 - - 7.5
at bank 4.5
Debt due within one year (3.2) 2.2 - - (1.0)
Debt due after more
than one year (69.9) (64.2) (4.9) 0.8 (138.2)
Finance leases (5.5) 1.1 (0.2) (0.7) (5.3)
(60.9)
(74.1) (57.9) (5.1) 0.1 (137.0)
Non-cash changes represent the effects of amortising issue costs relating to
bank loans and new finance leases.
13. Abridged Accounts
The financial information set out above does not constitute the Company's
statutory accounts for the years ended 31st December 2005 or 25th December 2004
within the meaning of section 240 of the Companies Act 1985, but is derived from
those accounts, subject to the adjustments in note 1.
Statutory accounts for 2004 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
2005 statutory accounts will be completed shortly and will be 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,
Mildmay Road, Bootle, Merseyside L20 5EW. The Announcement can also be accessed
on the Internet at www.Johnsonplc.com
The annual report and accounts will be posted to Shareholders on 4th April 2006.
15. Approval
The Preliminary Announcement was approved by the Board of Directors on 13th
March 2006.
16. Final Dividend
The final dividend is subject to confirmation at the Annual General Meeting
which will be held on Wednesday 11th May 2006 at Radisson SAS Hotel, 107 Old
Hall Street, Liverpool L3 9BD. Transfers to be taken into account for the
proposed final dividend must be lodged at the company's transfer office, Capita
Registrars, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU by midday
on Tuesday 18th April 2006, the expected record date. The ex dividend date will
be Wednesday 12th April 2006 and the proposed final dividend will be paid on
15th May 2006.
17. Summary IFRS Information
a) BASIS OF PREPARATION
The Group will be required to report under IFRS for the accounting period ending
on 31st December 2006. The summary income statement and net assets statement
for 2005 and 2004 presented below have been prepared in accordance with IFRS as
they are expected to apply to the Group.
The summary IFRS information that follows in this note has been prepared in
accordance with those IFRS standards and IFRIC interpretations issued and
endorsed or issued and expected to be endorsed by the European Union (EU), as at
the time of preparing these summary statements (March 2006). In addition, the
Group has adopted the amendment to IAS 19, Employee Benefits, that permits
actuarial gains and losses arising on defined benefit pension plans to be taken
to the Statement of Recognised Income and Expense.
The Johnson Service Group PLC consolidated financial statements were prepared in
accordance with UK Generally Accepted Accounting Principles (UK GAAP) until 31st
December 2005. UK GAAP differs in some areas from IFRS. 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 are provided in
this note.
The summary information presented in this note does not include all the
disclosures required in full IFRS financial statements and is therefore not
fully in accordance with IFRS disclosure requirements.
The revised principal accounting policies set out in the IFRS Impact Statement
issued in July 2005 are expected to be formally adopted by the Group when it
prepares its first annual report for the year ending 31st December 2006. These
standards remain subject to further amendments and interpretative guidance from
the International Accounting Standards Board (IASB) as well as ongoing review
and endorsement by the EU. Consequently, the accounting policies are
provisional and are subject to change.
b) SUMMARISED CONSOLIDATED INCOME STATEMENT UNDER IFRS
Year ended Year ended
31st December 25th December
2005 2004
Note #m #m
REVENUE 431.9 363.7
Costs recharged to customers (68.4) (86.0)
Revenue excluding costs recharged to customers 363.5 277.7
OPERATING PROFIT 31.8 27.3
f) OPERATING PROFIT BEFORE INTANGIBLES AMORTISATION AND 36.3 29.9
EXCEPTIONAL ITEMS
Amortisation of intangible assets (3.9) (0.6)
Restructuring and Environmental costs (5.0) (2.0)
Profit on disposal of property 4.4 -
OPERATING PROFIT 31.8 27.3
Finance costs (8.2) (5.5)
f) PROFIT BEFORE TAXATION 23.6 21.8
Taxation (6.6) (5.6)
PROFIT FOR THE PERIOD 17.0 16.2
g) ADJUSTED PROFIT BEFORE TAXATION 28.1 24.4
h) EARNINGS PER SHARE
Basic 29.2p 28.3p
Fully diluted 28.6p 27.8p
Adjusted (fully diluted) 33.8p 30.9p
c) CONSOLIDATED SUMMARY NET ASSET STATEMENT UNDER IFRS
As at As at
31st December 25th December
2005 2004
#m #m
ASSETS
NON-CURRENT ASSETS
Goodwill 140.7 108.3
Intangible assets 50.6 16.3
Property, plant and equipment 68.0 66.0
Rental items 30.1 24.5
Deferred tax assets 17.9 12.9
307.3 228.0
CURRENT ASSETS
Inventories 30.2 19.8
Trade and other receivables 65.0 54.3
Derivative financial assets 0.2 -
Cash and cash equivalents 7.5 4.5
102.9 78.6
LIABILITIES
CURRENT LIABILITIES
Trade and other payables 26.9 25.1
Other creditors and accruals 61.1 50.1
Current income tax liabilities 2.7 2.0
Borrowings 2.1 4.2
Derivative financial instruments 0.2 -
93.0 81.4
NET CURRENT ASSETS / (LIABILITIES) 9.9 (2.8)
NON-CURRENT LIABILITIES
Borrowings 142.6 74.7
Retirement benefit obligations 50.4 34.4
Deferred tax liabilities 14.6 6.8
Provisions and other non-current liabilities 19.7 17.5
227.3 133.4
NET ASSETS 89.9 91.8
d) CASH FLOWS FROM OPERATING ACTIVITIES UNDER IFRS
Year ended Year ended
31st December 25th December
2005 2004
#m #m
Cash flows from operating activities
Operating profit 31.8 27.3
Adjustments for:
Depreciation and amortisation 31.4 22.8
Increase in net working capital (3.3) (3.7)
Profit on sale of tangible fixed assets (6.2) (0.4)
Other non-cash movements (0.5) (1.1)
Cash generated from operations 53.2 44.9
The IFRS re-presentation has had no further impact on the cash flow position of
the Group, hence only the movements in the reconciliation of profit before
taxation to cash generated from operations have been disclosed.
e) RECONCILIATION OF UK GAAP TO IFRS
31st December 25th December
2005 2004
(i) Profit and loss account #m #m
Profit before taxation - UK GAAP 15.7 15.4
Add: Goodwill amortisation 11.6 7.2
Less: Amortisation of intangible assets (3.9) (0.6)
Less: Other differences - (0.2)
Add: Interest- IAS 39 0.2 -
Profit before taxation - IFRS 23.6 21.8
(ii) Net assets
Net assets - UK GAAP 70.3 80.5
Add: Goodwill amortisation 18.8 7.2
Less: Intangible assets amortisation (4.5) (0.6)
Add: Dividends 8.8 8.2
Less: Other (3.5) (3.5)
Net assets - IFRS 89.9 91.8
f) SEGMENTAL INFORMATION - ANALYSIS OF TURNOVER, OPERATING PROFIT
BEFORE RESTRUCTURING AND ENVIRONMENTAL COSTS AND INTANGIBLES AMORTISATION AND
PROFIT BEFORE TAXATION
Turnover Turnover Excluding
Costs Recharged to Customers
2005 2004 2005 2004
#m #m #m #m
CONTINUING
Rental 128.4 113.3 128.4 113.3
Corporatewear 87.1 37.6 87.1 37.6
Drycleaning 101.4 97.1 101.4 97.1
Facilities Management 115.0 115.7 46.6 29.7
431.9 363.7 363.5 277.7
Operating Profit before Restructuring and Profit before
Environmental Costs and Intangibles Amortisation Taxation
2005 2004 2005 2004
#m #m #m #m
CONTINUING
Rental 15.2 16.4 14.4 16.4
Corporatewear 11.4 4.1 6.8 3.6
Drycleaning 9.8 10.6 11.9 8.6
Facilities Management 4.4 1.8 3.3 1.7
Unallocated costs (4.5) (3.0) (4.6) (3.0)
36.3 29.9 31.8 27.3
Interest (8.2) (5.5)
PROFIT BEFORE TAXATION 23.6 21.8
g) ADJUSTED PROFIT BEFORE TAXATION
Year ended Year ended
31st December 25th December
2005 2004
#m #m
Profit before taxation 23.6 21.8
Intangibles amortisation 3.9 0.6
Restructuring and environmental costs 5.0 2.0
Profit on disposal of property (4.4) -
Adjusted profit before taxation 28.1 24.4
Intangibles amortisation relates to intangible assets arising on acquisitions.
Amortisation of computer software, which is also classified in the balance sheet
as intangible assets, is included in arriving at adjusted profit before
taxation.
h) EARNINGS PER SHARE
Year ended Year ended
31st December 25th December
2005 2004
#m #m
Profit for the period 17.0 16.2
Restructuring and Environmental costs (net of taxation) 3.8 1.4
Disposal of property (net of taxation) (4.4) -
Intangibles amortisation (net of taxation) 3.7 0.5
Adjusted profit attributable to Ordinary Shareholders 20.1 18.1
Weighted average number of Ordinary shares 58,208,126 57,419,393
Fully diluted number of Ordinary shares 59,357,348 58,492,266
EARNINGS PER SHARE
Basic 29.2p 28.3p
Fully diluted 28.6p 27.8p
ADJUSTED EARNINGS PER SHARE
Basic 34.5p 31.5p
Fully diluted 33.8p 30.9p
Basic earnings per share is calculated using the weighted average number of
shares in issue during the period, excluding those held by the ESOP, based on
the profit for the period. Adjusted earnings per share figures are given to
exclude the effects of intangibles amortisation and exceptional items, all net
of taxation.
For fully 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 period.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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