14th Mar 2005 07:01
Johnson Service Group PLC14 March 2005 14 March 2005 JOHNSON SERVICE GROUP PLC PRELIMINARY RESULTS FOR THE 52 WEEKS TO 25 DECEMBER 2004 2004 has been a year of delivery and further progress. Good organic growthtogether with targeted acquisitions has resulted in Johnson Service Groupoccupying strong positions in its two core business areas: textile relatedservices and facilities management. Operational Highlights - Creation of the UK's leading supplier of clothing to people at work - Rate of revenue decline in Johnsons Apparelmaster slows. Other areas show organic revenue growth of 7.4% on a like for like basis - Johnsons Drycleaning division revenue up 6% on a like for like basis - Workplace Management first full year of ownership completed exceeding expectations - Seven acquisitions completed for £31.2m in line with strategy and value criteria Financial Highlights 2004 2003 Change Turnover £364m £232m 57%Turnover (excluding costs recharged to customers) £278m £220m 26% Underlying Profit Before Tax* £25.4m £23.1m 10%Reported Profit Before Tax £15.7m £9.7m 62% Reported Earnings per Share 16.3p 12.2p 34%Adjusted Earnings per Share** 30.9p 28.7p 8% Dividend per Share 18.5p 17.6p 5% Simon Sherrard, Chairman, Johnson Service Group, said: "The major reshaping of the Group accomplished over the last two years hascreated a unique support services enterprise. Whilst still early in the newyear the first two months have begun well. I believe that we are well placed tobuild on last year's progress and deliver another satisfactory outcome in thecurrent year." * Underlying Profit Before Tax excludes restructuring costs, goodwillamortisation, exceptional items and costs relating to Board membership changes **Adjusted EPS is after excluding restructuring costs, goodwill amortisation andexceptional items Enquiries: Johnson Service Group PLCStuart Graham, CEO Tel: 020 7796 4133 on Monday 14 March onlyJim Wilkinson, CFO thereafter on 020 7290 0380 or 0151 933 6161 gcg hudson sandlerMichael Sandler Tel: 020 7796 4133James BenjaminSandrine Gallien CHAIRMAN'S STATEMENT This has been a further year of progress for The Johnson Service Group, as wehave continued to develop our business portfolio in our two core areas: textilerelated services and facilities management. We have been the clear UK marketleaders in renting and laundering garments, and drycleaning for many years andnow through targeted acquisitions, we have also become the largest supplier ofclothing for people at work in the UK. During the year we have produced goodorganic growth across the Group, further strengthened our management team andare successfully slowing the decline in Johnsons Apparelmaster. Financial results Total turnover grew by 57% to £364 million (2003: £232 million) while underlyingturnover (excluding costs recharged to customers in the Facilities Managementbusiness), increased by 26% to £278 million (2003: £220 million). Adjustedoperating profit from continuing operations, excluding restructuring costs andgoodwill amortisation grew by 12% to £29.6 million (2003: £26.4 million) and isstated after charging £0.5 million in relation to costs arising from the Boardchanges during September 2004. Restructuring costs in relation to theintegration of the Sketchley acquisition and the resultant changes to thedrycleaning operations amounted to £2.0 million, in line with the estimate atthe time of the acquisition. Underlying pre-tax profit, excluding restructuring costs, goodwill amortisationand Board reorganisation costs, grew by 10% to £25.4 million (2003: £23.1million) and adjusted fully diluted earnings per share by 8% to 30.9 pence(2003: 28.7 pence). Reported operating profit was £20.4million (2003:£22.1million). Reported pre-tax profit increased by 62% to £15.7 million (2003:£9.7 million), and fully diluted earnings per share rose 34% to 16.3 pence(2003: 12.2 pence). Cash flow Free cash flow generated from operations, although reduced from 2003 due toincreases in working capital, remained strong at £15.7 million (2003: £25.2million) and we maintained comfortable interest cover of 6.3 times (2003: 6.7times). After expenditure on acquisitions during the year totalling £31.2million, net debt at 25 December 2004 was £74.1 million (2003: £43.4 million).We acquired Dewhirst Corporate Clothing (DCC) for £23.8 million immediatelyafter the year end. Dividend Reflecting the future prospects of the Group the Board is recommending anincreased final dividend of 14.3 pence per share (2003: 13.6 pence). Togetherwith the interim dividend of 4.2 pence paid in October, this makes a total forthe year of 18.5 pence (2003: 17.6 pence), a rise of 5.1%. It is the Board'sintention to pursue a progressive dividend policy in the future while ensuring aprudent level of cover. Operations Our newer businesses in the growth markets of Facilities Management, SpecialistSupplies, Corporate Clothing and Hospitality Services all performed well duringthe year. The Drycleaning Division achieved excellent like-for-like salesgrowth in a difficult high street environment and with the on-going integrationof the Sketchley acquisition. Johnsons Apparelmaster showed encouraging signsof improvement in the second half based on our efforts to stimulate new businessand reduce costs while our niche linen operation, Stalbridge, continued growingorganically with revenue rising 14%. Acquisitions and disposal In 2002 the Group was focused on two main businesses, workwear rental withserviced laundry, and drycleaning, where the markets were either showing slowgrowth or were in decline. Through acquisitions and disposals the Group hasmoved towards serving faster growing markets resulting in the share of revenueit receives from the workwear rental with serviced laundry division falling from42% in 2002 to a current run rate of 26%. Over the last two years we have spent£54.3 million (net of cash acquired) on acquiring businesses and have realised£29.8 million from disposals. As a result the Group now also has an importantand growing business in Facilities Management and has markedly increased itsinvestment and prospects in the Corporatewear market. In the medium term the Group expects acquisitions to generate a pre-tax returnof at least 15% and the acquisitions made over the last two years are on courseto meet that target. As an example the Facilities Management and SpecialistSupplies Division was created through the acquisition of three companies at theend of 2003 for a cost of £27.7 million (£15.2 million net of cash acquired).This division generated operating profit of £3.5 million in 2004 at a margin of9% with further organic growth expected in 2005. The Board Jim Wilkinson, formerly Group Finance Director of Informa Group plc, joined theBoard as Chief Financial Officer on 27 September 2004, succeeding Mike Suttonwho resigned on the same date. Jim's experience in growth companies in the UKand overseas make him a considerable asset to the Board as we progress ourstrategy for the Group. We thank Mike for his contribution over 25 years,including 19 as Group Finance Director. As announced in the interim report, Simon Moate and Michael Del Mar were bothappointed to the Board on 12 May 2004. Simon joined the Group in 2002 and hasexecutive responsibility for corporate strategy and for our FacilitiesManagement and Specialist Supplies Division. Michael, who is a formerinvestment banker, joins us as an independent non-executive director. Outlook The major re-shaping of the Group accomplished over the last two years hascreated a support services enterprise with increased access to growing marketsand substantially reduced dependency on the traditional workwear sectoraddressed by Johnsons Apparelmaster. Whilst still early in the new year we have started the first two months well.Our Facilities Management and Specialist Supplies Division is continuing toachieve good organic growth. Our new corporate clothing companies are makingexcellent progress as they are integrated and we begin to exploit the crossselling opportunities. The Drycleaning Division has largely completed theintegration of the Sketchley shops and is looking to continue to generate solidlike-for-like sales growth. Johnsons Apparelmaster is continuing to perform well against its peer group in acompetitive market place affected by structural decline and over capacity. Theinitiatives we have taken to further strengthen our selling effort and improveefficiencies are bearing fruit, and we have a market-leading business that canlook forward with optimism. Overall, I believe that we are well placed to build on last year's progress anddeliver another satisfactory outcome in the current year. Simon Sherrard Chairman 14 March 2005 CHIEF EXECUTIVE'S REVIEW Over the last two years we have significantly increased the turnover of theGroup, acquired new businesses, strengthened management and effected extensivecultural change. We have substantially increased our exposure to growthmarkets, while tackling the challenges posed by the structural decline of ourtraditional, industrial workwear business. The new Johnson Service Group thatwe have created is clearly focused on meeting the needs of customers in two corebusiness areas where we occupy market-leading positions and the Group has aclear and deliverable strategy for sustainable future growth. STRATEGIC OVERVIEW During 2004 we completed, as promised, the first phase of our strategicrepositioning of the Johnson Service Group through further selectiveacquisitions, targeted investment in our core businesses, and continuedimprovements in management and processes throughout the Group. Having laidsolid foundations for future growth, we are now moving into the second phase ofour strategic development. We have established a clear mission and vision forthe Group as a world class integrated service provider for individuals andcompanies, dedicated to making their lives easier by allowing them to focus ontheir own business and lifestyle priorities. We aim to be seen by our peers andour shareholders as setting benchmark standards in support services. Under theacronym 'CONVERGE', our strategic priorities are defined as Consolidating ourbusiness offering, Organising our business structure, Navigating the rightcourse, focusing on Value Creation, Empowering our people, Rewarding ouremployees, Growing our business and Encouraging best practice throughout theGroup. Management There has been a significant strengthening of the management team over the lasttwo years. This process of change was continued in 2004 with the appointment ofJim Wilkinson as Group CFO, Chris Sander as MD of Johnsons Apparelmaster andMike Hill as MD of Stalbridge Linen Services. We also strengthened our teamthrough acquisitions, retaining Simon Hughes at Dimensions and Suzanne Walton atDCC. We now have an exceptionally talented senior management team, giving usthe ability to manage future growth through internal promotion. Our managingdirectors have been empowered to deliver, supported by the essential Groupinfrastructure of finance, information technology and human resources. As partof our devolution and empowerment strategy, we have significantly strengthenedthe Group Management Board we created some 18 months ago, ensuring fullrepresentation of every part of the business. Acquisitions and Disposal The prime focus of acquisition activity over the last 12 months has been oncreating a market-leading business in corporatewear, a growth opportunitydistinct from the traditional workwear sector serviced by JohnsonsApparelmaster. In July we purchased Dimensions, the UK's leading supplier ofcorporatewear, for a maximum consideration of £27.4 million includingperformance-related deferred payments of up to £3.4 million, and in December webought the specialist workwear business, S. Yaffy, for £3.5 million. Since theyear end we have also acquired the DCC business for a maximum consideration of£23.8 million. The acquired businesses are highly complementary to CCM, ourexisting garment sourcing operation, and to each other, with Dimensions and DCCfocusing primarily on retail and financial services customers respectively.Together they offer us significant potential benefits from the sharing of bestpractice and the exploitation of synergies. With an annualised throughput ofsome 10 million garments per year and proforma revenue of circa £90 million, ourenlarged clothing operations have real scale exceeding that of many UKretailers. We have created the clear market leader in the provision of clothingfor people at work in the UK, with strong brands and real potential for futuredevelopment in other European markets. The purchase for a nominal consideration of the Sketchley drycleaning shops hasadded another well-known consumer brand to our portfolio, extended our coveragein London and the South-East, and has given us an opportunity to create valuethrough cost savings and the introduction of our own standards and operatingprocedures. Integration with Johnson Cleaners is proceeding to plan, and most ofthe acquired branches had begun to make a positive contribution to profit by theyear end. The acquisition of HSS Event Hire for £1.5 million in April gave JohnsonHospitality Services undisputed market leadership in the rental of cateringequipment, furniture and related items to the hospitality industry nationwide. Our acquisitions over the last two years have met our strategic and valuecriteria and have delivered against our expectations. We will continue toaugment the strong organic growth of our business through further bolt-on andlarger acquisitions that meet our strict value criteria. The specialist supplies operation Alex Reid Ireland was sold in October for £0.9million, realising an attractive price for a business with limited organicgrowth potential. Investment We have continued to invest for the long term in all our operations, throughinitiatives such as the roll-out of the unique GreenEarth(R) cleaning processacross Johnson Cleaners. After a year long review of our IT infrastructure wehave decided to install a new Enterprise Resource Planning system. This will beimplemented over the course of the next three years at a total cost of some £11million and will be fully scaleable to accommodate our planned growth and willallow us to drive down costs in our supply chain as well as ensuring operationalbest practice across the Group. REVIEW OF OPERATIONS TEXTILE AND HOSPITALITY SERVICES Clothing for people at work The acquisitions of Dimensions Holdings in July 2004 and DCC in late December2004, allied to our existing CCM business, have enabled us to create a newClothing Division containing three premium brands, which together are thelargest supplier of clothing to people at work in the UK. CCM, our garment sourcing operation, maintained its strong growth record acrossall sectors of its business with revenue up 14% like for like. We managed togrow sales to existing customers and further progress was made in expanding ourNHS business, by gaining new 'Trust' customers. We also reduced costs byincreasing the proportion of products sourced from the Far East, which is amanaged trend expected to continue for the foreseeable future. Dimensions, the leading corporatewear supplier acquired in July 2004, hasperformed exceptionally well since joining the Group. The business hasbenefited from strong demand and a management team and employees who haveimpressed with their exciting and dynamic culture. This has been reflected inthe winning of clothing contracts for amongst others, a large security companyand a major retailer. These important wins consolidate the company's alreadystrong position in the retail sector, where established customers include alarge number of well known retail names. We believe that Dimensions is wellplaced for continued growth and expansion. DCC, acquired immediately after our year end added another leading brand to ourportfolio and brought us market leadership in the supply of corporatewear to thefinancial services sector. Again its major customers include many of thesector's largest names. The acquisition in December of S Yaffy, a small company specialising in thesupply of high quality police outerwear, further extended our product rangewithin the corporatewear sector. Our Clothing Division is now firmly established as the UK's largest supplier ofcorporatewear by both value and volume. Our aim is to accelerate the growth ofthese businesses by emphasising the excellent design, service and quality of theproducts, while exploiting the cross-selling opportunities between the brands.We will also be examining the opportunity to link the supply of corporatewear tothe provision of a service element provided by our retail and commercialdrycleaning operations nationwide. Johnsons Apparelmaster We remain the UK market leader in the laundering and rental of workwear. Wehave been at the forefront in identifying and responding to the major changes inour market place caused by the decline in British manufacturing and afundamental lack of company investment. Although turnover and profit continuedto decline in 2004, we saw encouraging signs of improvement, particularly in thesecond half, as we began to see the benefits of our actions to improve salesperformance, production processes and customer service. The rate of revenuedecline in the second half of 2004 was 2%, a marked improvement to thecomparable period in 2003 when revenue fell 4%. This reflects the increasedstability of the market place, reward from our investment in the productionprocesses and improvements made to the sales and customer service teams.Although the rate of revenue decline is slowing, the operating margin continuesto decrease as previously anticipated. We have also continued to address the cost base by undertaking a comprehensiveroute rationalisation programme. This was a major project involving thetransfer of over 8,000 customers and a substantial reduction in vehicle usage,delivering direct cost savings of some £0.75 million while simultaneouslyimproving our service. We have, and will continue over time, to invest significantly in the business,particularly in new plant and machinery, creating a modern, high-productivityasset base. This has enabled us to continue to meet the growing demand fromcustomers with high care requirements, such as the food processing industry. Wehave a clear and focused strategy and are strongly placed to continue thisprocess when the dynamics of the market place improve. Stalbridge Linen Services The business maintained its excellent record as Britain's leading supplier ofpremium linen hire services with organic revenue growth of 14%. Stalbridge is adynamic brand with an excellent reputation for quality of service and people andis operating within a buoyant market, focusing on high quality hotels,restaurants and contract caterers. Reorganisation and expansion of our sales force delivered significant results inthe second half of the year with particularly strong growth recorded in Scotlandand the Midlands, further increasing national brand awareness. Our Permagardprotective antimicrobial finish for garments used in food preparation areas hasenjoyed great success and we plan to launch further new products in 2005.These will enable us to exploit further growth opportunities within thisexpanding market. Johnson Hospitality Services The acquisition of HSS Event Hire in April 2004 extended our product range andgeographical coverage, making Johnson Hospitality Services ('JHS') the nationalmarket leader in this sector, with current revenue in excess of £10 million.The integration process will be completed during the first half of the currentyear with the roll out of new vehicle liveries, new stock lines and a unifiedproduct catalogue. JHS continues to service the vast majority of premium sporting facilities in theUK and has successfully developed new markets following joint marketinginitiatives with our Stalbridge linen hire business. In London, we have createda new, premium brand - Well Dressed Tables - which is performing well, with itshigh quality product range and service levels being well received. DRYCLEANING Johnson Cleaners Although high street trading conditions were generally challenging, JohnsonCleaners made good progress during 2004, achieving like for like sales growth of6%. We also consolidated our market leadership in UK drycleaning bystrengthening our representation in the South East through the acquisition of103 branches of the well-known Sketchley chain for a nominal £1. Since we acquired the business we have implemented Johnson's best practice andhave largely completed the integration of the Sketchley shops into our branchnetwork. This has been achieved within the £2 million that we budgeted forrestructuring costs. Much work remains to be done but trading benefits arealready being realised. As predicted the acquisition will not achieve the fullmargins enjoyed by the rest of our drycleaning operations until the end of 2005. Following the closure of 26 of the acquired Sketchley branches, and a number ofless profitable Johnsons outlets, we ended the year with a total of 595 branchesacross the UK, compared with 528 at the beginning of 2004. We continued tostrengthen our relationship with Tesco, both through our partnership with theirClubcard and the opening of a further five drycleaning concessions within oralongside Tesco stores. We now operate in 17 such locations and expect toexpand further as our relationship grows. As part of our focus on high traffic locations, we are already representedwithin selected food retailers including Waitrose stores, and are planning anumber of openings with other major retailers during 2005. Althoughcompetition for suitable drive-in sites is steadily increasing, we opened fourfurther locations during the year at Chesterfield, Burnley, Derby and Cambridge. We continued the programme to convert our branches to the environmentallyfriendly GreenEarth(R) drycleaning process. At the end of 2004 we had converted170 branches with the remaining branches expected to be converted by the end of2007. The in-house development of our new Electronic Point of Sale (EPoS) system wascompleted and rolled out during the year. We are already benefiting from theimproved management and financial information it generates, and from thestandardisation of in-store procedures. It has also enabled us to identify anumber of ways to improve our service offering and has given us furtheropportunities for cost-effective marketing, notably through the successfulJohnsons Priority Club. This has continued to grow and now has 470,000 activemembers, to whom we can offer targeted membership rewards that will help us toachieve improved retention. Jeeves of Belgravia Jeeves is widely recognised as 'London's Finest Drycleaner' and has an excellentreputation as a bespoke, luxury brand operating in prime retail sites inLondon's West End and City. It also provides a collection and delivery serviceto its discerning clientele. The business had nevertheless suffered from years of under investment prior toits acquisition by the Group in May 2003. During 2004 we continued to invest instate of the art processing technology, including installation of the GreenEarth(R) process. We also carried out some store refurbishments, updated the branddesign and are installing our new EPoS system. We are also aiming to grow thecustomer base for our collection and delivery service. Jeeves International We have continued to support our international franchisees through a number ofbrand, retail and marketing initiatives, and are having a number of activediscussions with potential franchisees with a view to extending ourrepresentation in Europe, the Middle East and Asia. FACILITIES MANAGEMENT AND SPECIALIST SUPPLIES Johnson Workplace Management Since we acquired this business in October 2003, we have undertaken acomprehensive re-branding and corporate identity programme designed to reinforcethe position of Johnson Workplace Management ('JWM') as one of the leadingproviders of outsourced procurement and facilities management in the UK. Thisprocess has helped JWM redefine markets and services and has provided a platformfor significant new business development in 2005, continuing the momentum gainedthrough our organic growth in 2004. We have also further strengthened the management team while at the same timehave managed to reduce costs through operational efficiencies. In particular,premises costs were significantly reduced in 2004 through relocation of the JWMheadquarters in Bracknell and of our Scottish office in Aberdeen. We have successfully concluded the complicated relocation of the newly merged HMTreasury and HM Customs & Excise departments to refurbished Whitehall offices.This was conducted on behalf of the Exchequer Partnership under a PFI contract.Other PFI contracts in the education and healthcare markets are performing welland are expected to generate additional business growth during 2005 and wellinto the future. We have continued to develop our portfolio of high added value support servicesthrough acquisitions. Environmental Pest Control, an acquisition made inDecember 2003, continues to make strong progress and new products are beingdeveloped for introduction in 2005. In November 2004, we acquired ACE (Ascot)Limited for £0.7 million, which provides high quality electrical and buildingrefurbishment skills that ideally complement our space planning and projectmanagement capabilities. Since the year end we have purchased Acame Limited for£1 million, a mechanical and electrical engineering support services businessspecialising in the installation and maintenance of equipment. All offer goodgrowth prospects that we intend to enhance through the development of our newWorkplace Direct brand. Alex Reid Since we acquired this supplier of consumables to drycleaners and launderers inDecember 2003 we have pursued a strategy of widening its product range andcustomer base, while continuing to grow its share of core markets. Its focuswas tightened during the year by the sale of Alex Reid Ireland, with which wehave retained a supply arrangement and envisage a strong continuingrelationship. Despite difficult trading conditions on the high street, Alex Reid achieved goodorganic revenue growth in 2004 led by new product development. We achievedsignificant success from our marketing alliance with Procter & Gamble for theirrange of industrial detergents and we added the Evercare range of home andgarment care products to the offering. We launched the GreenEarth(R) cleaning process to independent drycleaners in theUK in August 2004, attracting high levels of interest. We also successfullynegotiated the acquisition of the Master Licence for GreenEarth(R) throughoutEurope, giving us the potential to capture a significant share of the Europeansolvents and supplies market. We strengthened the management team in January 2005 by appointing a newmarketing director to help drive the growth of Alex Reid in the UK and otherEuropean markets. A new website with enhanced product information and orderingfacilities is being developed and will come on-line in the first quarter of2005, greatly increasing our ability to sell existing products to users in othertrades. THE FUTURE The clear strategy that we developed in our reviews of 2002 and 2003 hasdelivered what we promised. Underperforming operations have been sold, corebusinesses strengthened and our exposure to growth markets substantiallyincreased through well-researched and successfully integrated acquisitions. Inevery area where we operate we are either the clear market leader or in aposition of strength. We have also accomplished a major change in culture toensure that management and employees alike are empowered and incentivised todeliver. Having laid these firm foundations, we are now moving forward into the nextstage of our strategy and development, with the aim of delivering sustained,profitable growth. We will continue to drive organic growth in our existingbusinesses by focusing on our customers, enhancing our services and introducingmore innovative products and processes. This will be supported by well-targetedinvestment in our central functions, operations and systems. We will also enhance our prospects through further acquisitions, where thesemeet our strategic criteria and can be completed at prices that represent goodvalue to our shareholders. In addition, we will look to exploit our establishedUK strengths across a broader geographical area, when we believe that it isappropriate to do so. Johnson Service Group today has a strong business and customer portfolio, andindustry-leading management operating within a devolved and empowered structureand culture. I believe that we are well positioned to build on what we haveachieved to date and so develop a distinctive, profitable and sustainablegrowing business for the future. Stuart Graham Chief Executive 14 March 2005 JOHNSON SERVICE GROUP PLCCONSOLIDATED PROFIT AND LOSS ACCOUNT 52 WEEKS 52 WEEKS DECEMBER DECEMBER 2004 2003 £m £m2 TURNOVER Continuing 336.3 213.3 Acquisitions 27.7 - 364.0 213.3 Discontinued - 18.3 TOTAL TURNOVER 364.0 231.6 Costs recharged to customers (86.0) (12.0)2 Turnover excluding costs recharged to customers 278.0 219.6 OPERATING PROFIT BEFORE RESTRUCTURING COSTS2 AND GOODWILL AMORTISATION Continuing 28.6 26.4 Acquisitions 1.0 - 29.6 26.4 Discontinued - 0.7 TOTAL 29.6 27.1 3 Restructuring costs (2.0) - Amortisation of goodwill (7.2) (5.0) OPERATING PROFIT Continuing 22.4 22.4 Acquisitions (2.0) - 20.4 22.4 Discontinued - (0.3) TOTAL 20.4 22.1 4 EXCEPTIONAL ITEMS Disposal of businesses (discontinued) - (9.2) Profit on disposal of property (discontinued) - 0.8 PROFIT ON ORDINARY ACTIVITIES BEFORE INTEREST 20.4 13.7 Net interest (4.7) (4.0) 2 PROFIT ON ORDINARY ACTIVITIES BEFORE TAXATION 15.7 9.7 6 Tax on profit on ordinary activities (6.2) (2.8) PROFIT ON ORDINARY ACTIVITIES AFTER TAXATION 9.5 6.9 7 Dividends (10.6) (10.0) LOSS FOR THE FINANCIAL YEAR (1.1) (3.1) 5 ADJUSTED PROFIT BEFORE TAX (EXCLUDING RESTRUCTURING COSTS, GOODWILL AMORTISATION AND EXCEPTIONAL ITEMS) 24.9 23.1 RATES OF DIVIDEND PER SHARE Ordinary shares of 10p each:- Interim - paid 4.2p 4.0p Final - paid - 13.6p Final - proposed 14.3p - 8 EARNINGS PER SHARE BASIC 16.6p 12.3p FULLY DILUTED 16.3p 12.2p ADJUSTED EARNINGS PER SHARES (see note 8) BASIC 31.4p 28.9p FULLY DILUTED 30.9p 28.7p STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES £m £m Profit for the financial year 9.5 6.9 Credit for share options - 0.1 Currency translation differences on foreign currency net investments - 0.1 Total recognised gains and losses for the year 9.5 7.1 JOHNSON SERVICE GROUP PLCCONSOLIDATED BALANCE SHEET DECEMBER DECEMBER 2004 2003 £m £m Restated FIXED ASSETS Intangible fixed assets 111.4 89.8 Tangible fixed assets: Property, plant and equipment 68.3 64.2 Rental items 24.5 21.4 Total 92.8 85.6 204.2 175.4 CURRENT ASSETS Stocks 19.8 8.8 Debtors: Amounts falling due within one year 54.1 47.7 Amounts falling due after more than one year 5.7 5.8 59.8 53.5 Cash at bank and in hand 4.5 2.2 84.1 64.5 CURRENT LIABILITIES Creditors: Amounts falling due within one year (88.0) (71.0) NET CURRENT LIABILITIES (3.9) (6.5) TOTAL ASSETS LESS CURRENT LIABILITIES 200.3 168.9 Creditors: Amounts falling due after more than one year (78.1) (49.1) PROVISIONS FOR LIABILITIES AND CHARGES (16.7) (14.9) NET ASSETS 105.5 104.9 CAPITAL AND RESERVES Called-up share capital 5.8 5.7 Share premium account 9.5 8.0 Revaluation reserve 8.0 8.5 Other reserves 2.1 2.1 Profit and loss account 80.1 80.6 EQUITY SHAREHOLDERS' FUNDS 105.5 104.9 JOHNSON SERVICE GROUP PLCCONSOLIDATED CASH FLOW STATEMENT 52 WEEKS 52 WEEKS DECEMBER DECEMBER 2004 2003 £m £m 9 NET CASH INFLOW FROM OPERATING ACTIVITIES 44.9 52.9 RETURNS ON INVESTMENTS AND SERVICING OF FINANCE Net interest paid (4.2) (4.4) Issue costs on new bank loans - (0.3) NET CASH OUTFLOW FROM RETURNS ON INVESTMENTS AND SERVICING OF FINANCE (4.2) (4.7) TAXATION Tax paid (net) (5.8) (6.9) CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT Payments to acquire tangible fixed assets - property, plant and equipment (6.4) (5.2) Receipts from sales of tangible fixed assets - property, plant and 1.5 4.1 equipment Payments to acquire tangible fixed assets - rental items (19.4) (19.8) Proceeds from tangible fixed assets - rental items withdrawn from 5.1 4.8 circulation NET CASH OUTFLOW FOR CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT (19.2) (16.1) FREE CASH FLOW 15.7 25.2 ACQUISITIONS AND DISPOSALS 10 Payments to acquire businesses (32.5) (37.3)10 Cash balances acquired with businesses 1.3 14.2 Receipts from disposal of businesses 1.1 29.0 Cash balances disposed with businesses - (0.3) NET CASH (OUTFLOW)/INFLOW FROM ACQUISITIONS AND DISPOSALS (30.1) 5.6 EQUITY DIVIDENDS PAID (10.2) (10.0) CASH (OUTFLOW)/INFLOW BEFORE FINANCING (24.6) 20.8 FINANCING Issue of Ordinary share capital 1.7 0.7 Debt due in more than one year: Loans repaid (0.3) (62.4) New loans advanced 26.0 46.0 Capital element of payments under finance arrangements (0.5) (0.6) NET CASH INFLOW/(OUTFLOW) FROM FINANCING 26.9 (16.3) 11 INCREASE IN CASH IN THE FINANCIAL YEAR 2.3 4.5 NOTES TO THE PRELIMINARY ANNOUNCEMENT 1. Change in Accounting Policy The Group has changed its accounting policy in respect of its ESOP trust tocomply with the provisions of UITF38. The impact of adopting the UITF was toreduce investments and Shareholders' funds by £0.4 million as at 27th December2003. There is no effect on the reported profit and loss account or earningsper share for the 52 weeks ended 25th December 2004 or 27th December 2003. 2. Segmental Information - Analysis of Turnover, Operating ProfitBefore Restructuring Costs and Goodwill Amortisation and Profit Before Taxation Turnover Turnover Excluding Costs Recharged to Customers 2004 2003 2004 2003 £m £m £m £m CONTINUING Textile and Hospitality Services 150.9 122.4 150.9 122.4 Drycleaning 86.9 73.5 86.9 73.5 Facilities Management and Supplies 126.2 17.4 40.2 5.4 Total continuing 364.0 213.3 278.0 201.3 DISCONTINUED UK Textile Rental - 6.1 - 6.1 IR Textile Rental - 12.2 - 12.2 Total discontinued - 18.3 - 18.3 364.0 231.6 278.0 219.6 Operating Profit before Profit before Restructuring Costs and Goodwill Amortisation Taxation 2004 2003 2004 2003 £m £m £m £m CONTINUING Textile and Hospitality Services 18.0 18.0 13.7 14.6 Drycleaning 8.1 8.0 5.1 7.6 Facilities Management and Supplies 3.5 0.4 1.6 0.2 Total continuing 29.6 26.4 20.4 22.4 DISCONTINUED UK Textile Rental - 0.3 - 1.5 IR Textile Rental - 0.4 - (10.2) Total discontinued - 0.7 - (8.7) 29.6 27.1 20.4 13.7 Interest (4.7) (4.0) PROFIT BEFORE TAXATION 15.7 9.7 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 on the profit and loss account to aidinterpretation of the business. Discontinued activities in 2003 relate to the sales and profit of Connacht CourtGroup Ltd (CCG), Johnsons Washroom Services Ltd (JWS) and Central Laundries Ltd(Central) up to the date of disposal. NOTES TO THE PRELIMINARY ANNOUNCEMENT /Continued... 3. Restructuring Costs The restructuring costs are associated with the integration of the Sketchleydrycleaning business acquired in May 2004 and the resultant changes required toprocessing facilities. They comprise mainly redundancy costs, write off offixed assets and provisions for the costs for the outstanding lease commitmentson shop closures. 4. Exceptional Items 52 weeks to 52 weeks to Dec 2004 Dec 2003 £m £m Loss on disposal of CCG - (10.1) Gain on disposal of JWS - 4.6 Loss on disposal of Central - (3.7) Disposal of businesses - (9.2) Gain on disposal of textile rental property - 0.8 Total - (8.4) 5. Adjusted Profit Before Tax The reconciliation of profit before tax and adjusted profit before tax is asfollows:- 52 Weeks to 52 Weeks to Dec Dec 2004 2003 £m £m Profit on ordinary activities before tax 15.7 9.7 Add goodwill amortisation 7.2 5.0 Add restructuring costs 2.0 - Add exceptional items - 8.4 Adjusted profit before tax 24.9 23.1 6. Taxation 52 Weeks to Dec 52 Weeks to Dec 2004 2003 £m £m CURRENT TAX UK corporation tax charge for the period - continuing 6.0 5.8 Adjustment in relation to previous years - continuing (0.8) (4.5) Current tax charge for the year 5.2 1.3 DEFERRED TAX Origination and reversal of timing differences - continuing 0.4 0.8 Adjustment in relation to previous years - continuing 0.6 0.7 Deferred tax charge for the year 1.0 1.5 Total charge for taxation 6.2 2.8 There is no charge to taxation on the exceptional items. The adjustment in 2003 to UK corporation tax in respect of previous years of£4.5m includes £3.9m in relation to the agreement of specific, non-recurringmatters with the Inland Revenue. 7. Dividends 52 Weeks to Dec 52 Weeks to Dec 2004 2003 £m £m Ordinary shares at 18.5p (2003: 17.6p) per share 10.6 10.0 On 22nd October 2004 an interim dividend of 4.2p was paid on the Ordinaryshares. A proposed final dividend of 14.3p will be paid on 13th May 2005 toShareholders on the register of members on 15th April 2005. NOTES TO THE PRELIMINARY ANNOUNCEMENT /Continued... 8. Earnings Per Share 52 Weeks to Dec 52 Weeks to Dec 2004 2003 £m £m Profit for the financial year 9.5 6.9 Add loss on exceptional items - 8.4 Add restructuring costs (net of taxation) 1.4 - Add goodwill amortisation (net of taxation) 7.1 5.0 Less tax credit relating to prior periods (note 6) - (3.9) Adjusted profit attributable to Ordinary Shareholders 18.0 16.4 Weighted average number of Ordinary shares 57,419,393 56,940,711 Fully diluted number of Ordinary shares 58,429,266 57,449,593 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 attributable to Ordinary Shareholders. Adjusted earnings per share figures are given to exclude the effects ofrestructuring costs, goodwill amortisation and exceptional items, all net oftaxation, and in 2003, the non-recurring tax credit relating to the agreement ofspecific matters in prior periods and are considered to show the underlyingresults 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 52 Weeks to 52 Weeks to Dec 2004 Dec 2003 £m £m Operating profit 20.4 22.1 Depreciation 22.2 25.3 Amortisation of goodwill 7.2 5.0 Profit on sale of tangible fixed assets (0.4) (0.7) Charge for share options - 0.1 Increase in current assets (4.6) (2.2) Increase in creditors 0.7 1.3 Adjustment in respect of provisions and pensions (0.6) 2.0 Net cash inflow from operating activities 44.9 52.9 NOTES TO THE PRELIMINARY ANNOUNCEMENT /Continued... 10. Acquisitions 52 Weeks to 52 Weeks to Dec 2004 Dec 2003 £m £m Purchase of Businesses Payments to acquire businesses 32.5 37.3 Cash and overdraft balances acquired with businesses (1.3) (14.2) Net cash consideration 31.2 23.1 Acquisitions were completed during the year for net cash consideration of £31.2million, and deferred consideration and loan notes of £6.0 million, generatinggoodwill of £29.8 million. Sketchley Services Ltd (Sketchley) was acquired on 18th May 2004 fora nominal cash consideration of £1 plus deferred consideration. Sketchley maybenefit from potential tax benefits from the future utilisation of broughtforward trading losses which could arise subject to agreement with the InlandRevenue. Due to the uncertainty surrounding the availability and value of thelosses the Directors believe it to be prudent not to recognise any potentialbenefit at this stage. If a benefit is realised in future years this will give rise to a liability fordeferred consideration, the maximum liability under the agreement being £5million. If the maximum liability arises, tax benefits of £8.5 million willhave been realised. 11. Reconciliation of Net Cash Flow to Movement in Net Debt 52 Weeks to 52 Weeks to Dec 2004 Dec 2003 £m £m Increase in cash in year 2.3 4.5 Cash (inflow)/outflow on change in debt and lease financing (25.2) 17.3 Change in net debt resulting from cash flows (22.9) 21.8 Finance leases - new (5.1) (1.1) Amortisation of issue costs of bank loans (0.1) (0.1) Issue of loan notes (2.3) (0.9) Loans and leases acquired with subsidiaries (0.3) (0.1) Leases disposed with subsidiaries - 0.3 Exchange movement - (1.4)Related Shares:
Johnson Service