13th Mar 2006 07:01
Johnson Service Group PLC13 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 facilitiesmanagement Group announces its preliminary results for the financial year ending31 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-businessoperations which have high levels of recurring revenues and real growthpotential. Our Corporatewear and Facilities Management businesses are performingwell in growth markets and conditions in the workwear rental sector areimproving. As previously indicated our Drycleaning business remainsunpredictable. We are confident in the future of the Group and remain well placed to deliveranother satisfactory outcome for the year as a whole." Financial Highlights 2005 2004 ChangeTurnover £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 intangibleamortisation and exceptional items. www.johnsonplc.com For further information, please contact: Johnson Service Group PLC Hudson SandlerStuart Graham, CEO Michael SandlerJim Wilkinson, CFO James BenjaminTel: 020 7796 4133 (on the day) Sandrine GallienTel: 020 7290 0390 (thereafter) Telephone: 020 7796 4133 PRELIMINARY STATEMENT We are pleased to report a year of further progress for the Group. Particularlystrong performances by our newer Facilities Management and Corporatewearbusinesses have helped us to achieve our financial objectives despite the impacton Drycleaning of the weak retail market. We have also managed to stabilise andgrow our Apparelmaster garment rental business after several years ofindustry-wide decline and we continue to see excellent growth from ourStalbridge linen rental business. Group results The results for the year were in line with our expectations. Total turnovergrew by 19% to £432m (2004: £364m), while turnover, excluding costs recharged tocustomers 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 £86mexpenditure on acquisitions, net of disposals, over the last two years. As a result of our acquisitions, amortisation of intangible assets increasedsubstantially. We also incurred net exceptional costs of £0.6m (2004: £2.0 m);these comprised restructuring costs of £4.0m; a £1.0m provision forenvironmental and asbestos remediation work and exceptional income of £4.4mrelating to the gain on the sale of ten retail properties and a textile rentalfacility. The restructuring expenditure arose as we integrated our acquiredbusinesses and rationalised back office functions. This restructuring hasalready led to a saving of some £500k in 2005 and is expected to yield annualsavings of £1.3m from 2006. In addition we rationalised the number of premisesthat Johnson Hospitality Services (JHS) trades from and incurred additionalcosts 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 2005under UK GAAP, supplemented with summary IFRS financial information, rather thanunder IFRS as previously indicated. This is to comply with the Companies Act1985 (as amended November 2004) and is a result of the current accounting yearcommencing on 26 December 2004, i.e. prior to the IFRS adoption date of 1January 2005. The only significant difference in the Group profit and lossaccount is the treatment of amortisation of goodwill and intangibles. Thereforethe adjusted profit (before amortisation, restructuring and environmental costsand exceptional items) under IFRS is nearly identical to that reported under UKGAAP. Summary IFRS information has been included in note 17 to this preliminaryannouncement. To aid comparability with our peers who will be reporting underIFRS, the following numbers used in this commentary are IFRS based unlessotherwise stated. Adjusted profit before taxation rose by 15% to £28.1m (2004: £24.4m) andadjusted fully diluted earnings per share by 9% to 33.8 pence (2004: 30.9pence). Finances In July we established a new £200m five year Revolving Credit Facility with asyndicate of seven banks. This was agreed on more favourable terms than ourprevious 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 increasereflected our net cash spend on acquisitions of £56.2m, continuing capitalexpenditure and a £3.4m rise in our working capital. Capital expenditure isexpected to continue at a substantial level through 2006, as previously advised,but then decrease markedly as our major IT and building programmes arecompleted. The interest charge was covered over four times by adjusted operatingprofit. Investment During the year we spent £23.2m on fixed assets to enhance efficiency, introducenew technologies and enlarge our capacity in markets with long-term growthpotential. Our largest single project is the £11m roll-out of an EnterpriseResource Planning system, which is expected to be largely completed by the endof 2006 on budget. This will give us a real competitive advantage by allowing usto increase efficiency, reduce costs and ensure operational best practice acrossthe 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 levelsexperienced at our linen rental business, Stalbridge, together with the returnto growth of our workwear rental operation, Apparelmaster. Another sign of theimprovement in Apparelmaster's performance was that receipts from customers whoterminated their contracts fell to £3.5m (2004: £5.1m) as retention ratesimproved. Acquisitions During the year we made eight acquisitions for a total value of £62.2m,including deferred consideration. The acquisitions continued our strategy ofrefocusing the Group towards markets which offer higher growthbusiness-to-business services, with strong recurring revenue streams, hencereducing our exposure to our traditional and more volatile markets in garmentrental and drycleaning. The two principal acquisitions made during the year were in the Corporatewearand Facilities Management Divisions. At the start of the financial year weacquired the DCC corporatewear business, focusing primarily on customers in thefinancial services and leisure sectors, for a maximum consideration of £23.0m.In October 2005 we bought SGP Property Services, providing white-collarfacilities management to the financial services, leisure and retail sectors, fora maximum consideration of £24.8m. Other smaller acquisitions made during theyear were further bolt-ons to our Corporatewear and Facilities ManagementDivisions and trade and asset purchases designed to strengthen JohnsonsApparelmaster 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 ormay not lead to an offer being received. Pension schemes As previously reported in our Trading Update in January 2006, we face anincreased deficit in our pension schemes as a result of rising life expectancyand lower corporate bond yields. Our main defined benefit scheme, the JohnsonGroup Staff Pension Scheme, was closed to new entrants in 2002. However, thenormal triennial valuation was conducted during the year and this, updated inDecember under FRS 17, has resulted in an £11.3m increase in the deficitcompared with that reported last year. This brings the net deficit after tax forall our pension schemes to a total of £34.0m. The two main sensitivities associated with the valuation of the scheme arerelated to longevity assumptions and movements in the discount rate, both ofwhich are outside the control of the Group. A one year change in the longevityassumed will alter the deficit by £5.0m whilst a 0.5% movement in the discountrate will cause the deficit to change by £17m. The age assumptions used are thatwomen 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 inOctober, this makes a total for the year of 19.4 pence (2004: 18.5 pence), arise of 5%. It is the Board's intention to continue to pursue a progressivedividend policy while maintaining a prudent level of cover. Operational Review Rental The Rental Division saw an increase in revenues of 13% (7% excludingacquisitions), consisting of a welcome stabilisation in Johnsons Apparelmasterrevenues and continued strong growth from Stalbridge Linen Services. Howeveradjusted operating profit fell 7% as Johnson Hospitality Services underperformedduring the second half of the year with sales down 7%. Johnsons Apparelmaster Apparelmaster, the UK leader in the laundering and rental of workwear, has seenseveral years of sales decline. Following significant management effort we haveachieved an improved business performance in 2005, with organic revenuesincreasing by 2%. Total revenues rose 4% following the acquisition of customercontracts from four small competitors who were exiting the market. This is thefirst time in several years that we have achieved a stabilising in revenues, aswe contracted in line with a market that has suffered from the rapid decline inUK manufacturing. Strategically we have focused on developing our turnover with smaller andmedium-sized customers in response to particularly intense price competition forlarge national accounts. This approach, together with continued investment inour sales force and marketing plans has resulted in new business sales andcustomer retention rates both improving. We have also sustained the rate ofinvestment made over the last two years in the people and infrastructure withinthe business. This has enabled us to provide a high quality and efficientservice to our customers, while maintaining a low cost base. This action,together with the acquisitions, has helped us to improve the total operatingprofit margin from 13.3% to 13.9%. It is expected that the operating profit margin will be under pressure during2006 as the cost increases we are experiencing are unlikely to be totallymatched by price rises. In January 2006 Rentokil Initial announced the closure of its UK linen andworkwear operations. We are actively marketing to the customers that it isintending to stop servicing with some success. In addition, the processingcapacity that will be closing may help the industry achieve greater pricestability. Stalbridge Linen Services and Johnson Hospitality Services (JHS) Stalbridge again achieved excellent organic revenue growth of 28% in the premiumhotel, catering and corporate hospitality sector, where it is the clear marketleader. Total revenues increased by 46% following the strategic acquisitions ofbusinesses in Winchester and Essex, which increase our geographic coverage. Theoperating margin decreased from 15.5% to 12.8% as expected, following theacquisitions and the increased investment in operational and managementinfrastructure required to support future growth. Further expansion is plannedin 2006, when we will begin construction of a new state-of-the-art laundryfacility in the East Midlands. Business has grown in all parts of the country,supported by innovative marketing that is recognised as the best in theindustry, and by successful new product launches. Very high levels of customerretention again complemented an exceptional new business sales performance.Indeed, the company prides itself in its 'no contract' offering, based on ourconfidence that customers will receive service levels far in excess of thoseoffered elsewhere. JHS is the market leader in the provision of furniture and catering equipment tothe contract catering market. Following a disappointing trading performanceduring the second half of the year JHS was merged under the Stalbridgemanagement team, though they remain as separate customer-facing brands. Thisintegration was designed to enhance service, maximise cross-sellingopportunities and realise operational and distribution efficiencies and costsavings. The new management team is also working to develop a flexible cost basethat more appropriately reflects the seasonal pattern of demand. We alsoembarked on a rationalisation of the JHS branch network, with three locationsclosing in 2005 and a further closure planned in the current year, when we willalso be relocating the head office to new premises in Buckingham. We haveexpanded and radically altered the JHS sales function to focus on thebusiness-to-business market, and to ensure that we leverage the strongcross-selling opportunities with Stalbridge. We remain convinced that thecombined JHS and Stalbridge offering is a robust business model and we havealready seen an improvement in the performance of JHS in 2006. Corporatewear The Corporatewear Division saw revenue growth of 132% and adjusted operatingprofit growth of 178% over the year, largely due to our acquisition activityduring 2004 and the start of 2005. Excluding the acquisitions we still saw goodorganic revenue growth of 10%. The five acquired businesses complemented ourexisting company, CCM, and achieved our aim of creating the UK's clear marketleader in the supply of high quality corporate clothing. The market for corporatewear is continuing to grow strongly and has significantfurther potential. Over half the workers in the US wear corporate uniforms. Inthe UK penetration is under 40%, and on the Continent it is below 20%. As themarket leader in Britain and one of the largest suppliers in Europe, we are wellplaced to exploit the development potential this affords. Our strategy is to capitalise on the individual strengths of the variousbusinesses we have acquired, which all have strong brands and close customerrelationships built on specialist knowledge of distinct market sectors. Thisenables us to provide our customers with the focus that they demand. At thesame time, we have been able to leverage our Group scale in worldwide sourcingto reduce product costs and improve quality, while enhancing efficiency andservice levels through the integration of back office functions. Theseefficiencies have seen the operating margin of the division increase from 11% to13%. Management has been unified under a Corporatewear board to ensure that weexploit potential synergies and cross-selling opportunities to the full. All our brands achieved good organic growth during the year. Dimensions, whichis primarily focused on large, blue chip retail customers, has continued todevelop its enviable client list, which includes Tesco, Sainsbury's, Waitrose,BAA, Marriott hotels, Marks & Spencer and Boots. DCC mainly serves the financialservices sector, where its clients include HSBC, Lloyds TSB and Royal Bank ofScotland. Our workwear brand CCM, continued to exceed our expectationsachieving organic revenue growth of 7%. We have also developed a public services offering with Yaffy, focusing on highquality police outerwear, and Wessex, providing clothing for ambulance staff.These were complemented by the £4.0m acquisition in April 2005 of Boyd Cooper, asupplier of nurses' uniforms. All these businesses are performing well and arebenefiting from being part of a larger division. Across the business we are experiencing good growth that reflects the strengthof these customer relationships and the high quality of our newer and morecomprehensive catalogue offering. Our skills in design and logistics enable usto provide even the largest corporations with comprehensive management of theirclothing brand images. In addition, the substantially increased throughputcoupled with our procurement experience, is resulting in a saving of £3.0m perannum in the sourcing of new garments. Many of these savings will be passed ontocustomers, but together with our other skills they have contributed to a numberof notable business gains during the year, such as Group4Securicor, Post OfficeCounters, Mothercare and Alliance Pharmacy. 2006 has started strongly with twomajor pan-European contracts being secured as well as Virgin Atlantic Airwaysand Focus being won as new customers. Drycleaning Our market-leading retail Drycleaning business, which operates under theJohnsons, Sketchley and Jeeves brands, was affected by the general reduction inconsumer spending on the high street throughout 2005. Although overall revenuerose 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 operatingmargin of the retail business improving from 3.8% in the first half of the yearto 7.7% in the second half, without compromising quality. During the year we opened 13 new concessions within Sainsbury's stores, and fournew drive-in sites at Sutton Coldfield, Plymouth, Winchester and St Austell. Wealso acquired four independent shops and closed 31 underperforming branches,giving us a total of 587 units at the year-end. A further 60 branches wereconverted to the environmentally friendly GreenEarth(R) cleaning process duringthe year, extending the technology to 230 locations. Our Priority Club is continuing to expand and at the year-end reached a total of520,000 active members. In the final months of the year we began a co-ordinatedmarketing drive designed to increase customer numbers and the frequency of theirvisits. Following a full staff survey and independent consumer research, comprehensivechange plans have been developed to raise the profile of our shops and furtherimprove the effectiveness of our marketing. We have also begun trialling arange of innovative services designed to enhance our convenience to customers,including 24-hour drop-off boxes for depositing drycleaning, and a home andoffice collection and delivery service. In line with this strategic priority,the focus of our future branch opening plans will be on the acquisition ofhighly accessible and convenient drive-in sites. The trading performance of Jeeves of Belgravia, our luxury brand, steadilyimproved during the year as we began to see the results of increasing customerrecognition of our investment in both technology and people. We are confidentthat further improvements will be achieved in the current year, when we plan tolaunch an exciting new brand design. Alex Reid, our business which is the leading supplier of consumables to thedrycleaning industry, performed well in holding revenue and profits steadydespite the tough market conditions experienced during the year. In August 2005we strengthened the business by acquiring Firbimatic UK, a market leader in thesupply and servicing of machinery and ancillary equipment. Excellent progresshas been made in developing cross-selling opportunities and capitalising on thesynergies available. As the European Master Licence holder, Alex Reid has actively promoted theoperational and marketing advantages of the environmentally preferableGreenEarth(R) cleaning system process to drycleaners across the EU. Althoughpoor market conditions have limited investment by potential customers, saleswere encouraging in the latter part of the year. In addition to the trading activities outlined above, the Drycleaning segmentalresults include £1.8 m (2004: £1.4 m) of profit from the disposal of freeholdproperties and other non-trading income. A similar income is expected during2006. The Drycleaning business benefits from a property portfolio that extends toaround 90 freehold sites. If these sites were leasehold and charged at a marketrent to the division, the operating profit of the retail business would beapproximately £1.6 m (2004: £1.7 m) lower. Facilities Management Organic revenue growth of 5% was supported by the acquisitions of SGP PropertyServices (SGP) in October and by Acame in January. These helped our FacilitiesManagement 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 thefinancial, leisure and retail sectors, ideally complementing Johnson WorkplaceManagement (JWM) our existing facilities management business, which is focusedprimarily in the commercial office market. Both share the 'white collar' modelof facilities management, subcontracting lower-value commodity services. Theacquisition gives us significantly enhanced scale in this market enabling us tooffer a more complete service to potential customers. There is already an encouraging new business pipeline with both existing andpotential new clients. This is aided by the current retail downturn, which is apositive environment for selling the outsourced services that we offer. Althoughwe will exploit the synergies available in procurement we intend to maintain thedistinctive strengths of our two customer-facing brands. JWM has achieved good organic revenue growth of 5% with a number of newthree-year contracts being recently awarded by existing clients in thepharmaceuticals, electronics and telecoms sectors. We have also gained a numberof new clients in both the public and private sectors. At the same time, we haveagain been successful in reducing costs through the delivery of improvedoperational efficiencies. Workplace Engineering is our new brand for the delivery of hi-tech electrical,engineering and project fit-out services. It brings together two recentlyacquired businesses, Ace (Ascot) and Acame, both of which achieved significantgrowth in 2005 through a combination of open market tenders and referrals fromJWM. Their integration has now been completed, providing further efficienciesand cost savings and enabling us to take full advantage of the continuingopportunities in this buoyant sector. Outlook The Group remains focused on further developing its business-to-businessoperations which have high levels of recurring revenues and real growthpotential. Our textile offering is comprehensive and unique, while our expanded FacilitiesManagement activities now cover both the commercial and retail sectors. Thestrong business model we have developed allows us to exploit the cross-sellingopportunities that exist within and between our core activities and to deliversustained growth to the top and bottom line. With our Corporatewear and Facilities Management businesses performing well ingrowing markets and with improving conditions in the workwear rental sector weare confident in the future of the Group. Trading conditions for our retail Drycleaning business remain unpredictable. Theapproach for the Drycleaning business remains preliminary and an offer may ormay not be received. Subject to the comments above, we remain well placed to deliver anothersatisfactory outcome for the year as a whole. JOHNSON SERVICE GROUP PLC CONSOLIDATED PROFIT AND LOSS ACCOUNT - UNAUDITEDNote YEAR ENDED YEAR ENDED 31st DECEMBER 25th DECEMBER 2005 2004 £m £m Restated2 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) 9.31 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 PLCCONSOLIDATED 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 PLCCONSOLIDATED 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 preparedon the basis of the accounting policies stated in the Group's statutory accountsfor the year ended 25th December 2004, except as outlined below. Thepreliminary results should therefore be read in conjunction with the 2004 annualreport. The Group has changed its accounting policy in respect of share-based paymentsto comply with the provisions of FRS 20, Share-based Payments. The standardrequires that the fair value of share-based payments be recognised as an expensein the profit and loss account over the period of service to which the awardrelates. In accordance with the transitional rules of FRS 20, the Group hasapplied the requirements of the standard to awards granted after 7 November 2002that had not vested by 26 December 2004. The Group has also changed its accounting policy in respect of pensions andother retirement benefits to comply with the provisions of FRS17, RetirementBenefits. The standard requires the assets and liabilities of defined benefitretirement plans to be shown in the balance sheet, service costs and expectedinterest on plan assets and liabilities to be shown in the profit and lossaccount and changes in actuarial assumptions and movements on scheme assets andliabilities 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) 0.4FRS 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 beenrestated. For the year ended 31st December 2005, the adoption of FRS 17 and FRS 20 hasincreased operating profit by £0.3 million and reduced profit before taxation by£0.7 million. 2. Segmental Information - Analysis of Turnover, Operating ProfitBefore Restructuring and Environmental Costs and Goodwill Amortisation andProfit 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 ofacquisitions:- Turnover Operating Profit before Operating Profit Restructuring and Environmental Costs and Goodwill Amortisation £m £m £m Rental 6.3 0.9 0.1Corporatewear 24.6 3.9 2.3Drycleaning 2.7 0.3 0.2Facilities 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 centraloverheads separately, and to include the results of Alex Reid withinDrycleaning. 2004 has been re-analysed accordingly. The operating profit beforerestructuring and environmental costs and goodwill amortisation, and profitbefore taxation from Drycleaning includes £1.8 million (2004: £1.4 million) ofprofit from the disposal of properties formerly occupied by the drycleaningbusiness 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 includedin the Drycleaning segment in the analysis of Profit before Taxation. Turnover from continuing operations originates in the United Kingdom. There isno material difference between turnover by origin and by destination. Facilities Management turnover comprises fees receivable and costs recharged tocustomers where the relationship with the supplier of services is that ofprincipal. The element of turnover which comprises supplier costs recharged tocustomers has been shown separately in the profit and loss account to aidinterpretation 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 andmanagement of recently acquired businesses into the Group's divisions, andcomprise largely of redundancy costs and the write-off of fixed assets. Theenvironmental costs relate to a provision for the anticipated environmentalremediation 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 tradingproperties and a textile rental facility. 5. Adjusted Profit Before Tax The reconciliation of profit before tax and adjusted profit before tax is asfollows:- 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 thecurrent year has reduced UK corporation tax by £1.2 million (2004: £0.6million). The tax relief on goodwill amortisation has reduced UK corporationtax 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 Ordinaryshares. A proposed final dividend of 15.0p, will be paid on 15th May 2006 toShareholders on the register of members on 18th April 2006. The Trustee of theESOP has waived the entitlement to receive dividends on the Ordinary shares heldby 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 ofshares in issue during the year, excluding those held by the ESOP, based on theprofit on ordinary activities after taxation. Adjusted earnings per share figures are given to exclude the effects ofrestructuring costs, goodwill amortisation and exceptional items, all net oftaxation, and are considered to show the underlying results of the Group. For diluted earnings per share, the weighted average number of Ordinary sharesin issue is adjusted to assume conversion of all dilutive potential Ordinaryshares. The Company has dilutive potential Ordinary shares arising from shareoptions granted to employees where the exercise price is less than the averagemarket price of the Company's Ordinary shares during the year. 9. Reconciliation of Operating Profit to Net Cash Inflow fromOperating 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 £54.0million, and deferred consideration of £6.4 million, generating goodwill of£56.0 million. In addition deferred consideration of £2.2 million in respect ofacquisitions 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 tobank loans and new finance leases. 13. Abridged Accounts The financial information set out above does not constitute the Company'sstatutory accounts for the years ended 31st December 2005 or 25th December 2004within the meaning of section 240 of the Companies Act 1985, but is derived fromthose 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 anddid not contain a statement under s237(2) or (3) of the Companies Act 1985. The2005 statutory accounts will be completed shortly and will be delivered to theRegistrar of Companies following the Company's Annual General Meeting. 14. Preliminary Announcement A copy of this Preliminary Announcement is available on request to allShareholders by post from The Company Secretary, Johnson Service Group PLC,Mildmay Road, Bootle, Merseyside L20 5EW. The Announcement can also be accessedon 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 13thMarch 2006. 16. Final Dividend The final dividend is subject to confirmation at the Annual General Meetingwhich will be held on Wednesday 11th May 2006 at Radisson SAS Hotel, 107 OldHall Street, Liverpool L3 9BD. Transfers to be taken into account for theproposed final dividend must be lodged at the company's transfer office, CapitaRegistrars, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU by middayon Tuesday 18th April 2006, the expected record date. The ex dividend date willbe Wednesday 12th April 2006 and the proposed final dividend will be paid on15th May 2006. 17. Summary IFRS Information a) BASIS OF PREPARATION The Group will be required to report under IFRS for the accounting period endingon 31st December 2006. The summary income statement and net assets statementfor 2005 and 2004 presented below have been prepared in accordance with IFRS asthey are expected to apply to the Group. The summary IFRS information that follows in this note has been prepared inaccordance with those IFRS standards and IFRIC interpretations issued andendorsed or issued and expected to be endorsed by the European Union (EU), as atthe time of preparing these summary statements (March 2006). In addition, theGroup has adopted the amendment to IAS 19, Employee Benefits, that permitsactuarial gains and losses arising on defined benefit pension plans to be takento the Statement of Recognised Income and Expense. The Johnson Service Group PLC consolidated financial statements were prepared inaccordance with UK Generally Accepted Accounting Principles (UK GAAP) until 31stDecember 2005. UK GAAP differs in some areas from IFRS. Summaryreconciliations and descriptions of the effect of the transition from UK GAAP toIFRS on the Group's equity and its net income and cash flows are provided inthis note. The summary information presented in this note does not include all thedisclosures required in full IFRS financial statements and is therefore notfully in accordance with IFRS disclosure requirements. The revised principal accounting policies set out in the IFRS Impact Statementissued in July 2005 are expected to be formally adopted by the Group when itprepares its first annual report for the year ending 31st December 2006. Thesestandards remain subject to further amendments and interpretative guidance fromthe International Accounting Standards Board (IASB) as well as ongoing reviewand endorsement by the EU. Consequently, the accounting policies areprovisional and are subject to change. b) SUMMARISED CONSOLIDATED INCOME STATEMENT UNDER IFRS Year ended Year ended 31st December 25th December 2005 2004Note £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 £mCash flows from operating activitiesOperating profit 31.8 27.3Adjustments for:Depreciation and amortisation 31.4 22.8Increase 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 ofthe Group, hence only the movements in the reconciliation of profit beforetaxation 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 15.4Add: Goodwill amortisation 11.6 7.2Less: 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 80.5Add: Goodwill amortisation 18.8 7.2Less: Intangible assets amortisation (4.5) (0.6)Add: Dividends 8.8 8.2Less: Other (3.5) (3.5) Net assets - IFRS 89.9 91.8 f) SEGMENTAL INFORMATION - ANALYSIS OF TURNOVER, OPERATING PROFITBEFORE RESTRUCTURING AND ENVIRONMENTAL COSTS AND INTANGIBLES AMORTISATION ANDPROFIT BEFORE TAXATION Turnover Turnover Excluding Costs Recharged to Customers 2005 2004 2005 2004 £m £m £m £mCONTINUINGRental 128.4 113.3 128.4 113.3Corporatewear 87.1 37.6 87.1 37.6Drycleaning 101.4 97.1 101.4 97.1Facilities 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 £mCONTINUINGRental 15.2 16.4 14.4 16.4Corporatewear 11.4 4.1 6.8 3.6Drycleaning 9.8 10.6 11.9 8.6Facilities Management 4.4 1.8 3.3 1.7Unallocated costs (4.5) (3.0) (4.6) (3.0) 36.3 29.9 31.8 27.3Interest (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 21.8Intangibles amortisation 3.9 0.6Restructuring and environmental costs 5.0 2.0Profit 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 sheetas intangible assets, is included in arriving at adjusted profit beforetaxation. h) EARNINGS PER SHARE Year ended Year ended 31st December 25th December 2005 2004 £m £m Profit for the period 17.0 16.2Restructuring and Environmental costs (net of taxation) 3.8 1.4Disposal 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 57,419,393Fully diluted number of Ordinary shares 59,357,348 58,492,266 EARNINGS PER SHAREBasic 29.2p 28.3pFully diluted 28.6p 27.8p ADJUSTED EARNINGS PER SHAREBasic 34.5p 31.5pFully diluted 33.8p 30.9p Basic earnings per share is calculated using the weighted average number ofshares in issue during the period, excluding those held by the ESOP, based onthe profit for the period. Adjusted earnings per share figures are given toexclude the effects of intangibles amortisation and exceptional items, all netof taxation. For fully diluted earnings per share, the weighted average number of Ordinaryshares in issue is adjusted to assume conversion of all dilutive potentialOrdinary shares. The Company has dilutive potential Ordinary shares arisingfrom share options granted to employees where the exercise price is less thanthe 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 ExchangeRelated Shares:
Johnson Service