12th Sep 2005 07:01
Johnson Service Group PLC12 September 2005 12th September 2005 Johnson Service Group PLC Statement for the Half Year to 25th June 2005 Johnson Service Group PLC, the textile related services and facilitiesmanagement group announces its interim results for the 26 weeks to 25th June2005. Operational Summary • Weaker consumer demand leads Drycleaning revenue down 2.4% on like for like basis with adjusted operating profits* at £2.7m (2004: £5m) • Apparelmaster returns to organic revenue growth of 1% (2004: 5% decline) • Corporatewear performing well with significant rollouts in the second half • Facilities Management and Specialist Supplies continues to drive organic growth through new contract wins • Six acquisitions completed for £38m - adding strong recurring revenue streams and increased exposure to growing markets Financial Summary 2005 2004 Change Turnover £215.0m £168.7m 27%Turnover (excluding costs recharged to customers) £171.3m £125.7m 36% Reported Operating Profit £14.1m £14.2m (1%)Adjusted Operating Profit* £15.0m £14.3m 5% Reported Profit Before Tax £10.2m £11.9m (14%)Adjusted Profit Before Tax* £11.1m £12.0m (7%) Interim dividend 4.4p 4.2p 5% Simon Sherrard, Chairman, Johnson Service Group, commented: "With our Corporatewear and Facilities Management businesses performing well ingrowing markets and with improving market conditions in the Textile Rentalbusiness, we are confident in the future of the Group. Trading conditions forour retail drycleaning division were difficult during the first half of the yearand remain unpredictable. Subject to the comments above, we remain well placed to deliver anothersatisfactory outcome for the year as a whole." Website: www.johnsonplc.com * (before exceptional items and intangibles amortisation) For further information, please contact: Johnson Service Group PLC Hudson Sandler Stuart Graham, CEO Michael Sandler Jim Wilkinson, CFO James Benjamin Telephone Sandrine Gallien On 12th September: 020 7796 4133 Thereafter: 020 7290 0390 Telephone: 020 7796 4133 Chairman's Statement During the first half of the year, the Group recorded good organic growth in itsTextile Rental and Hospitality, Corporatewear and Facilities Management andSpecialist Supplies divisions. We have now positioned these businesses towards markets with a high degree ofgood quality, long-term recurring revenue. We are seeing improving industryconditions in Textile Rental, whilst our Corporatewear and Facilities Managementbusinesses have increased our exposure to expanding markets with clear,sustainable growth being demonstrated. This leads the Group to look forward tothe future with confidence despite the impact of drycleaning, which is clearlybeing affected by the poor retail trading conditions, as previously indicated inJuly, and saw like for like sales falling by 2.4% over the period. In total we spent £38 million on six acquisitions that meet our strict valuecriteria. These matched our strategic objectives of adding strong recurringrevenue streams to the Group whilst increasing our exposure to growing markets. Group Results and Dividend The Group results for the six months were in line with our expectations. Totalturnover was £215.0 million (2004: £168.7 million) and operating profit was£14.1 million (2004: £14.2 million). Turnover, excluding costs recharged tocustomers, increased by 36% to £171.3 million (2004: £125.7million) and adjustedoperating profit, excluding amortisation of intangibles and exceptional items,increased by 5% to £15.0 million (2004: £14.3 million). The interest charge was £3.9 million, increased from £2.3 million in 2004,reflecting the higher borrowings following the acquisitions made over the lastyear. The interest charge was covered over 3.8 times by adjusted operatingprofit. Profit before tax was £10.2 million (2004: £11.9 million) and fully dilutedearnings per share was 12.1p (2004: 14.1p). The decrease in profit compared tothe prior year reflects the Group's increased profit bias towards the secondhalf of this year. Recent acquisitions, particularly in the Corporatewear andHospitality divisions are expected to generate a significant proportion of theirbusiness in the second half of this year. In addition the slow start to the yearby our Drycleaning division is expected to skew its profits towards the secondhalf of the year as our cost control measures take effect. Adjusted pre-tax profit, which excludes amortisation of intangibles andexceptional items, was £11.1 million (2004: £12.0 million) and adjusted fullydiluted earnings per share, on the same basis, was 13.2p (2004: 14.3p). Exceptional items comprise acquisition restructuring costs (£0.6 million) andproperty related net income of £1.3 million. Following the significant number ofacquisitions over the last 18 months we are currently reviewing the operationalstructure of each division in order to realise synergies available in the Group.We anticipate that the total cost in relation to the restructuring of businesseswill be £3 million for the full year. We expect the reorganisation to result inannual savings of around £1 million with half of this amount benefiting 2005.With regard to property, we have disposed of a small group of trading propertiesrealising cash proceeds of £3.4 million and a gain over book value of £2.3million. We have also recognised an anticipated £1.0 million of costs inrelation to the vacation of our existing site at Bootle. The Group's net debt position has increased by £44 million over the period, withnet debt rising from £74.4 million at December 2004 to £118.4 million at June2005. The main cash outflow has been the net cash spend on acquisitions of £34.1million. In addition we have seen an increase in working capital of £7.8million. This is largely a timing difference as we have increased stock levelsof corporatewear ahead of several significant rollouts in the second half of theyear to our blue chip customers. The Board has decided to pay an increased interim dividend of 4.4p per share(2004: 4.2p), an increase of 5%. This will be paid on the 21st October toshareholders on the register at close of business on 30th September. Bank Facility Since the period end we have signed a new financing agreement for a £200 millionRevolving Credit Facility for a period of 5 years with 7 banks. The margin onthe new facility is more favourable than the previous facility, which began toamortise at the end of June 2005. DIVISIONAL TRADING RESULTS Textile Rental and Hospitality Services Turnover increased by 12% to £61.2 million (2004: £54.6 million) with themajority of this rise, 6.5%, being organic growth. Operating profit excludingamortisation of intangibles and exceptional items was 8.1% lower than the firsthalf of 2004 at £6.8 million (2004: £7.4 million). This was due to the increasedseasonality of the hospitality business following the acquisition of HSS Eventsin the late spring of 2004. We are very encouraged by the first signs of organic revenue growth for severalyears in the Johnsons Apparelmaster business where revenue, excludingacquisitions, grew by 1%. This compares to a 5% decline in revenue the previousyear and a fall of 16% from its peak in 2001. As anticipated, the margin hasreduced from 2004 as costs move ahead at a slightly faster pace. We havecontinued to invest in our own business, to identify additional sales andmarketing opportunities and to exploit production efficiencies that remain inthis business. Market conditions in the workwear rental market are improving as productioncapacity decreases following the departure of several of our competitors fromthe industry. We expect this trend to continue in the immediate future. We havepurchased the customer contracts from two of our smaller competitors for £3.7million who were leaving the industry. The extra production has been absorbed inour existing facilities and should produce returns well in excess of ouracquisition criteria. The Stalbridge Linen business is continuing its penetration of the premiumhotel, restaurant and corporate hospitality market, again achieving substantialorganic revenue growth of 28%. An additional laundry facility has been acquiredin order to meet the increased production requirement. We see further growthpotential within this expanding market and we are continuing the nationalroll-out of the brand. The results of the Johnson Hospitality Services (JHS) business have beenaffected by its increased seasonality. This follows the inclusion of a fullyear's trading of the HSS business, which was acquired in April 2004. Theincreased loss at the half-year of just over £1.0 million compared to 2004 isexpected to be recouped through the main corporate hospitality sales months ofJuly, September and December. We have decided to integrate JHS into Stalbridgeto ensure a seamless service is delivered to our customers. We also expect torealise some production and cost efficiencies as a result of this action. Corporatewear Turnover increased to £39.6 million (2004: £10.5 million) and operating profit,excluding amortisation of intangibles and other exceptional items, to £4.1million (2004: £1.0 million). This was mainly due to corporate activityfollowing the acquisitions of Dimensions, Wessex and Yaffy in 2004 and DCC andBoyd Cooper this year. We are now the largest supplier of workwear andcorporatewear in the UK, providing over 10 million garments to more than 2.2million wearers. Our customers include major blue chip companies in thefinancial, retail, leisure, travel and workwear markets. In addition, we provideuniforms and protective outerwear for use by police, nurses and ambulance staff. The division increased its operating margin to 10.4% in the first half of 2005compared to 9.5% in 2004. We expect to improve this further as we begin to takeadvantage of the synergies that are available to us. We have identifiedsignificant savings that can be achieved from combining the buying power of thedivision and through consolidation of the six companies' operating platforms. The businesses have continued to perform very well indeed with significant newbusiness won in the retail, security, catering and public sector. In addition,we continue to re-sign existing customers as their contracts come up for renewalby emphasising the excellent design, service and quality of the products. We are also re-launching our catalogue sales business, an area where we haveidentified significant growth potential. We have achieved our objective of becoming market leader in this sector andcontinue to look at further organic and acquisition opportunities both withinthe UK and overseas. Drycleaning Turnover increased to £43.4 million (2004: £41.3 million) although operatingprofit, excluding amortisation of intangibles and exceptional items, reduced to£2.7 million (2004: £5.0 million). The increase in turnover reflects theinclusion of the Sketchley business, which was acquired in May 2004, for a fullsix months. The Sketchley business has now been fully integrated into theJohnson drycleaning operation and trading benefits are already being achieved. The trading conditions in the retail sector, led by weaker consumer demand,affected our business and we saw same source sales fall by 2.4% over the period.As the weak consumer demand became evident, we took action to improve theoperating margin by reducing costs. We successfully reduced costs by £34,000 aweek and remain prepared to take further action if necessary. We are continuingto improve the positioning of our shops by siting them within major supermarketsand by developing more drive-in sites. We remain clear market leader in UKdrycleaning and are well-placed to respond to any increase in consumer spending. Following an unsatisfactory performance in 2004, the management of Jeeves waschanged prior to the end of last year. Under the new management the cost basehas been significantly reduced and all back office functions have beenintegrated into our existing drycleaning division. The roll-out of the GreenEarth(R) process has continued with 212 shops nowconverted. We remain committed to the conversion of the remaining shops over thenext few years. We launched Johnson Fabric Restoration Service (JFRS) late last year andalthough loss-making it is performing better than budget. It has contributedlosses of around £250,000 in the first half but is expected to be moving intoprofit next year. At the start of the year we purchased a small internet based laundry anddrycleaning business offering a home collection and delivery service in London.We are now refining the model and intend to test the market in other UK cities.This is a potentially new and significant market for our drycleaning brands andlaundry production capacity. Facilities Management and Specialist Supplies Turnover excluding costs recharged to customers increased to £27.1 million(2004: £19.3 million) and operating profit excluding amortisation of intangiblesand other exceptional items increased to £1.4 million (2004: £0.9 million). Johnson Workplace Management Limited has continued to win new long-termcontracts in both the public and private sectors, as reflected in the 9.2%organic growth in revenue achieved in the first half of the year. The acquisitions of ACE (Ascot) Ltd at the end of 2004 and Acame Ltd in January2005 have added to the portfolio of added value services offered to existingcustomers, by bringing into the Group electrical, mechanical and engineeringskills. These two companies have been combined and re-launched under the name 'Johnson Workplace Direct'. Alex Reid, the largest supplier of consumables to the drycleaning and laundryindustry has achieved organic growth despite the difficult trading conditions.The sale of GreenEarth(R) licences both in the UK and Europe is continuing andoffers an exciting opportunity for the future. IFRS As explained in the announcement made on 7th July, the Group is now required toreport under International Financial Reporting Standards (IFRS) and the interimresults are the first results of the Group to be reported under these new rules. Figures for June 2004 and December 2004 have been restated under IFRS and therequired reconciliations included in this statement. All figures in this statement refer to reporting under IFRS. IT Investment As indicated in the 2004 annual report we identified the need for investment inthe IT infrastructure and systems of the Group and we have commenced with thedevelopment of the new Enterprise Resource Planning system. The project remainson target in both time and implementation cost, with the first businessemploying the new system in the first quarter of 2006. Outlook During the first half, we have continued the considerable progress made over thelast few years in reshaping the Group into a strong business with recurringrevenues and opportunities in growth markets. Each of our four divisions has strong leadership and clear incentivisedobjectives to develop services and processes. We have started to combine thevarious businesses within each division to ensure best practice is adoptedthroughout, product-sourcing savings are captured and cross-sellingopportunities are maximised. With our Corporatewear and Facilities Management businesses performing well ingrowing markets and with improving market conditions in the Textile Rentalbusiness, we are confident in the future of the Group. Trading conditions forour retail drycleaning division were difficult during the first half of the yearand remain unpredictable. Subject to the comments above, we remain well placed to deliver anothersatisfactory outcome for the year as a whole. CONSOLIDATED INCOME STATEMENT 26 weeks 26 weeks 52 weeks ended ended ended 25th June 26th June 25th Dec 2005 2004 2004Note £m £m £m 2 REVENUE 215.0 168.7 363.7 Costs recharged to customers (43.7) (43.0) (86.0) Revenue excluding costs recharged to customers 171.3 125.7 277.7 2 OPERATING PROFIT 14.1 14.2 27.3 2 OPERATING PROFIT BEFORE INTANGIBLES AMORTISATION AND EXCEPTIONAL 15.0 14.3 29.9 ITEMS Amortisation of intangible assets (1.6) (0.1) (0.6) 3 Exceptional items 0.7 - (2.0) 2 OPERATING PROFIT 14.1 14.2 27.3 Finance costs (net) (3.9) (2.3) (5.5) 4 PROFIT BEFORE TAXATION 10.2 11.9 21.8 5 Taxation (3.0) (3.7) (5.6) PROFIT FOR THE PERIOD 7.2 8.2 16.2 7 EARNINGS PER SHARE * Basic 12.4p 14.4p 28.3p Fully diluted 12.1p 14.1p 27.8p 6 ORDINARY DIVIDENDS PAID AND PROPOSED Interim dividend proposed 4.4p - - Interim dividend - 4.2p 4.2p Final dividend - - 14.3p * Earnings per share before intangibles amortisation and exceptional items are shown in Note 7. CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE 26 weeks 26 weeks 52 weeks ended ended ended 25th June 26th June 25th Dec 2005 2004 2004 £m £m £m Actuarial (loss)/gain on defined benefit pension plans (5.0) - 0.2 Taxation in respect of actuarial loss 1.5 - - Net movement on reserves in respect of IAS 19 actuarial gains and (3.5) - 0.2 losses Adoption of IAS 39 (0.2) - - NET (EXPENSE)/INCOME RECOGNISED DIRECTLY IN EQUITY (3.7) - 0.2 Profit for the period 7.2 8.2 16.2 TOTAL RECOGNISED INCOME FOR THE PERIOD 3.5 8.2 16.4 CONSOLIDATED BALANCE SHEET As at As at As at 25th June 26th June 25th Dec 2005 2004 2004 Note £m £m £m ASSETS NON-CURRENT ASSETS Goodwill 124.9 91.9 108.3 Intangible assets 32.3 1.6 16.3 Property, plant and equipment 67.4 64.6 66.0 Rental items 27.6 22.3 24.5 Deferred tax assets 14.9 12.2 12.9 267.1 192.6 228.0 CURRENT ASSETS Inventories 29.9 9.7 19.8 Trade and other receivables 74.0 55.5 54.3 Cash and cash equivalents - 8.4 4.5 103.9 73.6 78.6 LIABILITIES CURRENT LIABILITIES Trade and other payables 31.9 20.9 25.1 Other creditors and accruals 63.5 46.8 50.1 Current income tax liabilities 3.1 3.1 2.0 Borrowings 7.4 0.6 4.2 Derivative financial instruments 0.2 - - 106.1 71.4 81.4 NET CURRENT (LIABILITIES)/ASSETS (2.2) 2.2 (2.8) NON-CURRENT LIABILITIES Borrowings 111.0 51.8 74.7 10 Retirement benefit obligations 39.8 34.6 34.4 Deferred tax liabilities 10.7 5.4 6.8 Provisions and other non-current liabilities 14.6 18.4 17.5 176.1 110.2 133.4 NET ASSETS 88.8 84.6 91.8 EQUITY CAPITAL AND RESERVES ATTRIBUTABLE TO THE COMPANY'S EQUITY HOLDERS 8 Called up share capital 5.9 5.8 5.8 8 Share premium 10.9 8.5 9.5 8 Other reserves 1.9 2.1 2.1 8 Retained earnings 70.1 68.2 74.4 TOTAL EQUITY 88.8 84.6 91.8 CONSOLIDATED CASH FLOW STATEMENT 26 weeks 26 weeks 52 weeks ended ended ended 25th June 26th June 25th Dec 2005 2004 2004 Note £m £m £m CASH FLOWS FROM OPERATING ACTIVITIES 4 Profit before taxation 10.2 11.9 21.8 Adjustments for: Finance income and expense 3.9 2.3 5.5 Depreciation and amortisation 14.2 10.8 22.8 Increase in net working capital (7.8) (0.3) (3.7) Profit on sale of property, plant and equipment (2.9) (0.6) (0.4) Other non-cash movements 0.2 (0.1) (1.1) Cash generated from operations 17.8 24.0 44.9 Finance costs (net) (3.3) (1.6) (4.2) Taxation paid (2.4) (2.3) (5.8) Net cash flows generated from operating activities 12.1 20.1 34.9 CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of subsidiaries (net of cash acquired) (34.1) (2.1) (31.2) Proceeds from sale of investments in other companies - 0.2 1.1 Purchase of property, plant and equipment (4.5) (2.8) (4.6) Proceeds from sale of property, plant and equipment 4.6 1.0 1.5 Purchase of intangible assets (2.7) (0.2) (1.8) Purchase of textile rental items (12.0) (8.6) (19.4) Proceeds from sale of textile rental items 1.6 2.3 5.1 Net cash used in investing activities (47.1) (10.2) (49.3) CASH FLOWS FROM FINANCING ACTIVITIES 11 Net proceeds from borrowings 36.0 4.0 26.0 11 Repayments of borrowings (2.2) (0.3) (0.3) 11 Capital element of finance leases (0.5) (0.2) (0.5) Net proceeds from issue of share capital 1.5 0.6 1.6 Net proceeds from sale of own shares in relation to employee share - - 0.1 schemes Dividends paid to company shareholders (8.2) (7.8) (10.2) Net cash generated from financing activities 26.6 (3.7) 16.7 11 Net (decrease) / increase in cash and cash equivalents (8.4) 6.2 2.3 Cash and cash equivalents at beginning of period 4.5 2.2 2.2 Cash and cash equivalents at end of period (3.9) 8.4 4.5 NOTES TO THE CONSOLIDATED INTERIM FINANCIAL STATEMENTS 1 BASIS OF PREPARATION These unaudited consolidated interim financial statements of Johnson ServiceGroup PLC are for the six months ended 25th June 2005. They have been preparedfor the first time in accordance with International Financial ReportingStandards (IFRS), and IFRS 1, First-time Adoption of IFRS, because they are partof the period covered by the Group's first IFRS financial statements for theyear ending 31st December 2005. These interim financial statements have beenprepared in accordance with those IFRS standards and IFRIC interpretationsissued and endorsed, or issued and expected to be endorsed by the European Union(EU), as at the time of preparing these statements (September 2005). Inaddition the Group has elected to adopt the amendments of IAS 19, EmployeeBenefits, issued in December 2004 in advance of the effective date of 1stJanuary 2006, as endorsement of these amendments by the EU is expected laterthis year. As a result the Group has recognised actuarial gains and lossesarising on defined benefit pension plans in reserves. The IFRS standards andIFRIC interpretations that will be applicable at 31st December 2005, includingthose that will be applicable on an optional basis, are not known with certaintyat the time of preparing these interim financial statements. The revised principal accounting policies set out on pages 17 to 18 are expectedto be formally adopted by the Group when it prepares its first annual report forthe year ending 31st December 2005. These standards will remain subject tofurther amendments and interpretative guidance from the International AccountingStandards Board (IASB) as well as ongoing review and endorsement by the EU.Consequently, the accounting policies are provisional and are subject to change. The accounting policies have been consistently applied to all the periodspresented except for those relating to the classification and measurement offinancial instruments. The Group has made use of the exemption available underIFRS 1 to only apply IAS 32 and IAS 39 from 26th December 2004. The Johnson Service Group PLC consolidated financial statements were prepared inaccordance with UK Generally Accepted Accounting Principles (UK GAAP) until 25thDecember 2004. UK GAAP differs in some areas from IFRS. In preparing theJohnson Service Group PLC 2005 consolidated interim financial statements,management has amended certain accounting, valuation and consolidation methodsapplied in the UK GAAP financial statements to comply with IFRS. Thecomparative figures in respect of 2004 were restated to reflect theseadjustments, except as described in the accounting policies below. The abridged profit and loss accounts, balance sheets and cash flow statementsas at June 2005 and June 2004, are unaudited and have not been reviewed by theauditors. The profit and loss account, balance sheet and cash flow statementfor December 2004 are abridged from the Group's full accounts for that year, asoriginally reported under UK GAAP, and as noted above, have subsequently beenrestated for transition to IFRS. Those UK GAAP accounts received an unqualifiedaudit report and have been filed with the Registrar of Companies, and theauditors' report did not contain a statement under Section 237 (2) or (3) of theCompanies Act 1985 (as amended). Reconciliations 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 at theend of this report. 2 SEGMENT ANALYSIS At 25th June 2005, the Group is organised into four business segments: rental;corporatewear; drycleaning; facilities management and specialist supplies. Thesegment results for the 26 weeks ended 25th June 2005 are as follows: 26 weeks ended 26 weeks ended 52 weeks ended 25th June 26th June 25th Dec 2005 2004 2004 £m £m £mRevenueRental 61.2 54.6 113.3Corporatewear 39.6 10.5 37.6Drycleaning 43.4 41.3 86.6Facilities management and specialist supplies 70.8 62.3 126.2 215.0 168.7 363.7 Revenue excluding costs recharged to customersRental 61.2 54.6 113.3Corporatewear 39.6 10.5 37.6Drycleaning 43.4 41.3 86.6Facilities management and specialist supplies 27.1 19.3 40.2 171.3 125.7 277.7 Operating profitRental 5.3 7.4 14.9Corporatewear 2.5 1.0 3.2Drycleaning 5.0 5.0 6.6Facilities management and specialist supplies 1.3 0.8 2.6 14.1 14.2 27.3 Operating profit before intangibles amortisation and exceptionalitemsRental 6.8 7.4 14.9Corporatewear 4.1 1.0 3.7Drycleaning 2.7 5.0 8.6Facilities management and specialist supplies 1.4 0.9 2.7 15.0 14.3 29.9 Revenue originates in the United Kingdom. 3 EXCEPTIONAL ITEMS 26 weeks ended 26 weeks ended 52 weeks ended 25th June 26th June 25th Dec 2005 2004 2004 £m £m £m Restructuring costs (0.6) - (2.0)Property disposals 2.3 - -Environmental provision (1.0) - - 0.7 - (2.0) Restructuring costs are in respect of the re-organisation of the operation andmanagement of acquired businesses and comprise largely of redundancy costs andthe write-off of fixed assets. Property disposals relate to the gain ondisposal of a small group of trading properties and the environmental provisionrelates to the anticipated environmental remediation cost of vacating anexisting site. 4 ADJUSTED PROFIT BEFORE TAXATION 26 weeks ended 26 weeks ended 52 weeks ended 25th June 26th June 25th Dec 2005 2004 2004 £m £m £m Profit before taxation 10.2 11.9 21.8 Intangibles amortisation 1.6 0.1 0.6 Exceptional items (0.7) - 2.0 Adjusted profit before taxation 11.1 12.0 24.4 5 TAXATION 26 weeks ended 26 weeks ended 52 weeks ended 25th June 26th June 25th Dec 2005 2004 2004 £m £m £mTaxation for the period: CURRENT TAXCurrent tax charge for the period 3.1 3.4 4.6 DEFERRED TAXDeferred tax charge for the period (0.1) 0.3 1.0 TOTAL CHARGE FOR TAXATION 3.0 3.7 5.6 The tax relief on exceptional items within the period has reduced UK corporationtax by £0.3 million (June 2004: £nil). There was no tax relief on intangiblesamortisation within the period (June 2004: £nil). 6 DIVIDENDS 26 weeks ended 26 weeks ended 52 weeks ended 25th June 26th June 25th Dec 2005 2004 2004 £m £m £m ORDINARY DIVIDENDS PAID AND PROPOSEDInterim dividend proposed 4.4p - - Interim dividend - 4.2p 4.2p Final dividend - - 14.3p The directors are proposing an interim dividend in respect of the financial yearending 31st December 2005 of 4.4p per share (2004: 4.2p) which will reduceshareholders' funds by £2.6 million (2004: £2.4 million). It will be paid on21st October 2005 to shareholders who are on the register on 30th September2005. In accordance with International Financial Reporting Standards, thesefinancial statements do not reflect the dividend payable. 7 EARNINGS PER SHARE 26 weeks ended 26 weeks ended 52 weeks ended 25th June 26th June 25th Dec 2005 2004 2004 £m £m £m Profit attributable to Ordinary Shareholders 7.2 8.2 16.2 Exceptional items (net of taxation) (1.0) - 1.4 Intangibles amortisation (net of taxation) 1.6 0.1 0.5 Adjusted profit attributable to Ordinary Shareholders 7.8 8.3 18.1 Weighted average number of Ordinary shares 58,144,347 57,366,096 57,419,393Fully diluted number of Ordinary shares 59,411,864 58,335,967 58,492,266 EARNINGS PER SHAREBasic 12.4p 14.4p 28.3p Fully diluted 12.1p 14.1p 27.8p ADJUSTED EARNINGS PER SHAREBasic 13.4p 14.5p 31.5pFully diluted 13.2p 14.3p 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 attributable to Ordinary Shareholders. Adjusted earnings per sharefigures are given to exclude the effects of intangibles amortisation andexceptional items, all net of 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. 8 CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY Share Share Other Retained Total capital premium reserves earnings equity £m £m £m £m £m Balance at 28th December 2003 5.7 8.0 2.1 67.7 83.5Issue of share capital 0.1 0.5 - - 0.6Profit for the period - - - 8.2 8.2Dividends - - - (7.7) (7.7) Balance at 26th June 2004 5.8 8.5 2.1 68.2 84.6 Balance at 27th June 2004 5.8 8.5 2.1 68.2 84.6Issue of share capital - 1.0 - - 1.0Share options (value of employee - - - 0.5 0.5services)Profit for the period - - - 8.0 8.0Dividends - - - (2.5) (2.5)Net actuarial gain - - - 0.2 0.2 Balance at 25th December 2004 5.8 9.5 2.1 74.4 91.8 Adoption of IAS 39 - - (0.1) - (0.1) Balance at 26th December 2004 5.8 9.5 2.0 74.4 91.7 Issue of share capital 0.1 1.4 - - 1.5Share options (value of employee - - - 0.2 0.2services)Profit for the period - - - 7.2 7.2Dividends - - - (8.2) (8.2)Cash flow hedge (transfer to net - - 0.1 - 0.1profit)Cash flow hedge (fair value loss in - - (0.2) - (0.2)period)Net actuarial loss - - - (3.5) (3.5) Balance at 25th June 2005 5.9 10.9 1.9 70.1 88.8 9 BUSINESS COMBINATIONS Acquisitions Businesses acquired during the period are shown below: FAIR VALUE Tangible Separately Consideration assets identified and costs acquired intangibles Goodwill £m £m £m £m DCC 24.2 5.5 10.0 8.7Others 13.8 3.6 5.9 4.3 38.0 9.1 15.9 13.0 Movements in respect of deferred tax on intangibles - (3.5) - 3.5Adjustments to prior period 0.3 0.2 - 0.1 Total acquisitions in the period 38.3 5.8 15.9 16.6 Consideration has been satisfied by: £mCash consideration payable 34.7Deferred consideration 2.0Loan notes issued 1.3Costs relating to previous year acquisitions 0.3 38.3 The deferred consideration relates to theacquisitions as follows: £mDCC 1.3Others 0.7 2.0 The deferred consideration is dependent upon the achievement of certainperformance targets. Amounts provided represent the maximum amount payableshould all targets be met. Fair value of assets acquired on current period acquisitions £mTangible fixed assets - property, plant and equipment 2.4Tangible fixed assets - rental items 1.2Inventories 6.3Trade and other receivables 5.5Cash and cash equivalents 1.1Creditors and other liabilities (7.4) 9.1 Adjustments made to the fair value of assets of businesses acquired in 2005 areprovisional due to the short period of ownership. Adjustments in respect ofacquisitions in 2004 arose due to additional costs and increased knowledge ofassets and liabilities resulting from a longer period of ownership. 10 RETIREMENT BENEFITS The Group has applied the requirements of IAS 19 Employee Benefits (revisedDecember 2004) to its employee pension schemes and post-retirement healthcarebenefits. The adjustment to net assets of £25.5 million as at December 2004, as previouslyreported in the IFRS Impact Statement, comprised of a £34.4 million grossliability, an associated deferred tax asset of £10.4 million and the combinedreversal of the previously recognised SSAP24 asset and a movement due to thevariation in the method of valuing scheme assets as prescribed by IAS 19 of £1.5million. Following discussions with the Group's appointed actuary it has been identifiedthat the gross provision required at 25th June 2005 should be increased to £39.8million. This is as a result of the scheme assets and liabilities performingdifferently to previous assumptions. A full actuarial valuation of the assetsand liabilities of the scheme as at April 2005 is in progress, and any resultantchanges to the valuation will be reflected within the full year financialstatements to 31st December 2005. The gross retirement benefit liability and associated deferred tax assetthereon, together with the net liability is shown below. As at As at As at 25th June 26th June 25th Dec 2005 2004 2004 £m £m £m Retirement benefit liability (39.8) (34.6) (34.4) Deferred tax asset thereon 12.1 10.4 10.4 Net liability (27.7) (24.2) (24.0) 11 ANALYSIS OF NET DEBT Acquisitions At 25th (excluding Other At 25th Dec Cash cash and non-cash June 2004 flow overdrafts) changes 2005 £m £m £m £m £m Cash and cash equivalents 4.5 (8.4) - - (3.9)Debt due within one year (3.2) 2.2 - (1.3) (2.3)Debt due after more than one year (69.9) (36.0) - (0.1) (106.0)Finance leases (5.8) 0.5 (0.1) (0.8) (6.2) Total (74.4) (41.7) (0.1) (2.2) (118.4) 12 SUBSEQUENT EVENTS Bank facility Since the period end the Group has signed a new financing agreement for a £200million Revolving Credit Facility for a period of five years with seven banks. 13 PUBLISHED INTERIM STATEMENT Copies of the interim report are to be sent to Shareholders and will beavailable to members of the public at the Company's registered office at MildmayRoad, Bootle, Merseyside L20 5EW. The report can also be accessed on the internet at www.johnsonplc.com SUMMARY OF THE REVISED PRINCIPAL ACCOUNTING POLICIES AS A RESULT OF THE ADOPTIONOF INTERNATIONAL FINANCIAL REPORTING STANDARDS Consolidation The financial statements consolidate the results of Johnson Service Group PLCand its subsidiary undertakings. The accounting periods of subsidiaryundertakings are co-terminous with those of the Company. Inter-companytransactions, balances and unrealised gains on transactions between groupcompanies are eliminated. Unrealised losses are also eliminated unless thetransaction provides evidence of an impairment of the asset transferred.Subsidiaries' accounting policies have been changed where necessary to ensureconsistency with the policies adopted by the Group. The purchase method of accounting is used to account for the acquisition ofsubsidiaries by the Group. The cost of an acquisition is measured as the fairvalue of the assets given, equity instruments issued and liabilities incurred orassumed at the date of exchange, plus costs directly attributable to theacquisition. Identifiable assets acquired and liabilities and contingentliabilities assumed in a business combination are measured initially at theirfair value at the acquisition date, irrespective of the extent of any minorityinterest. The excess of the cost of acquisition over the fair value of theGroup's share of the identifiable tangible and intangible net assets acquired isrecorded as goodwill. If the cost of acquisition is less than the fair value ofthe Group's share of the net assets of the subsidiary acquired, the differenceis recognised directly in the income statement. Segment reporting A business segment is a group of assets and operations engaged in providingproducts or services that are subject to risks and returns that are differentfrom those of other business segments. Foreign currency translation The consolidated financial statements are presented in sterling, which is theCompany's functional and presentational currency. Foreign currency transactions are translated into the functional currency usingthe exchange rates prevailing at the dates of the transactions. Foreignexchange gains and losses resulting from the settlement of such transactions andfrom the translation at year-end exchange rates of monetary assets andliabilities denominated in foreign currencies are recognised in the incomestatement, except where hedge accounting is applied as explained below. Accounting for derivative financial instruments and hedging activities From 28th December 2003 to 25th December 2004 Derivative financial instruments are designated 'hedging' or 'non-hedging'instruments. The transactions that can meet the conditions for hedgeaccounting, according to the Group's policy for risk management, are classifiedas hedging transactions; the others, although set up for the purpose of managingrisk (since the Group's policy does not permit speculative transactions), havebeen designated as 'Trading'. The Group records derivative financialinstruments at cost. The gains and losses on derivative financial instrumentsare included in the income statement on maturity to match the underlying hedgetransactions where relevant. For foreign exchange instruments designated as hedges, the premium (or discount)representing the difference between the spot exchange at the inception of thecontract and the forward exchange rate is included in the income statement, infinance costs, in accordance with the accrual method. For interest rate instruments designated as hedges, the interest ratedifferential is included in the income statement, in finance costs, inaccordance with the accrual method, offsetting the effects of the hedgedtransaction. Derivative financial instruments designated as trading instrumentsare valued at year-end market value, and the difference between the nominalcontract value and fair value is recorded in the income statement under financecost. From 26th December 2004 Derivatives are initially recognised at fair value on the date a derivativecontract is entered into and are subsequently remeasured at their fair value.The method of recognising the resulting gain or loss depends on whether thederivative is designated as a hedging instrument, and if so, the nature of theitem being hedged. The Group designates certain derivatives as hedges of thevariability of cash flows (cash flow hedge). The Group documents at the inception of the transaction the relationship betweenhedging instruments and hedged items, as well as its risk management objectiveand strategy for undertaking various hedge transactions. The Group alsodocuments its assessment, both at hedge inception and on an ongoing basis, ofwhether the derivatives that are used in hedging transactions are highlyeffective in offsetting changes in the cash flows of hedged items. Cash flow hedges The effective portion of changes in the fair value of derivatives that aredesignated and qualify as cash flow hedges are recognised in equity. The gainor loss relating to the ineffective portion is recognised immediately in theincome statement. Amounts accumulated in equity are recycled in the income statement in theperiods when the hedged item will affect profit or loss (for example, when theforecast sale that is hedged takes place). However, when the forecasttransaction that is hedged results in the recognition of a non-financial asset(for example, inventory) or a liability, the gains and losses previouslydeferred in equity are transferred from equity and included in the initialmeasurement of the cost of the asset or liability. When a hedging instrument expires or is sold, or when a hedge no longer meetsthe criteria for hedge accounting, any cumulative gain or loss existing inequity at that time remains in equity and is recognised when the forecasttransaction is ultimately recognised in the income statement. When a forecasttransaction is no longer expected to occur, the cumulative gain or loss that wasreported in equity is immediately transferred to the income statement. Derivatives that do not qualify for hedge accounting Certain derivative instruments do not qualify for hedge accounting. Suchderivatives are classified as at fair value through profit or loss, and changesin their fair value are recognised immediately in the income statement. Fair value estimation The fair value of financial instruments traded in active markets (such aspublicly traded derivatives, and trading and available-for-sale securities) isbased on quoted market prices at the balance sheet date. The quoted marketprice used for financial assets held by the Group is the current bid price; theappropriate quoted market price for financial liabilities is the current askprice. The nominal value less estimated credit adjustments of trade receivables isassumed to approximate to their fair values. The fair value of financialliabilities is estimated by discounting the future contractual cash flows at thecurrent market interest rate that is available to the Group for similarfinancial instruments. Intangible Assets (i) Goodwill Goodwill represents the excess of the cost of an acquisition over the fair valueof the Group's share of the net identifiable assets of the acquired subsidiaryat the date of acquisition. Goodwill on acquisitions of subsidiaries isincluded in non-current assets. Goodwill is tested annually for impairment andcarried at cost less accumulated impairment losses. Gains and losses on thedisposal of an entity include the carrying amount of goodwill relating to theentity sold. (ii) Intangible assets Intangible assets comprise of brands and customer contracts and relationships,recognised at cost or fair value. They have a finite useful life and arecarried at cost less accumulated amortisation. Amortisation is calculated usingthe straight-line method to allocate the cost of the intangible assets overtheir estimated useful lives (4 - 20 years). (iii) Computer software Acquired computer software licences are capitalised on the basis of the costsincurred to acquire and bring to use the specific software, and are included onthe balance sheet within intangible assets. Costs are amortised over theirestimated useful lives (4 - 10 years). Costs associated with the general development and maintenance of computersoftware programs are recognised as an expense as incurred. Costs that aredirectly associated with the production of identifiable and unique softwareproducts controlled by the Group, and that will probably generate economicbenefits exceeding costs beyond one year, are recognised as intangible assets.Direct costs include the costs of employees involved in software development andan appropriate portion of relevant overheads. Computer software development costs recognised as assets are amortised overtheir estimated useful lives (not exceeding 10 years). Deferred taxation Deferred tax is provided in full, using the liability method, on temporarydifferences arising between the tax bases of assets and liabilities and theircarrying amounts in the consolidated financial statements. Deferred tax is notaccounted for if it arises from initial recognition of an asset or liability ina transaction, other than a business combination, that at the time of thetransaction affects neither accounting nor taxable profit or loss. Deferred taxis determined using tax rates (and laws) that have been enacted or substantiallyenacted by the balance sheet date and that are expected to apply when therelated deferred tax asset is realised or the deferred tax liability is settled. Deferred tax assets are recognised to the extent that it is probable that futuretaxable profit will be available against which the temporary differences can beutilised. Employee benefits (i) Pension obligations Group companies operate various pension schemes. The schemes are funded throughpayments to insurance companies or trustee-administered funds, determined byperiodic actuarial calculations. The Group has both defined benefit and definedcontribution plans. The liability recognised in the balance sheet in respect of defined benefitpension plans is the present value of the defined benefit obligation at thebalance sheet date less the fair value of plan assets. The defined benefitobligation is calculated periodically by an independent actuary. The presentvalue of the defined benefit obligation is determined by discounting theestimated future cash outflows using interest rates of high-quality corporatebonds that have terms to maturity approximating to the terms of the relatedpension liability. Current service costs are recognised in operating costs in the income statement. Interest cost on plan liabilities and the expected return on plan assets arerecognised in finance costs. Actuarial gains and losses arising from experienceadjustments and changes in actuarial assumptions are charged or credited to theconsolidated statement of recognised income and expense. For defined contribution plans, the Group pays contributions to publicly orprivately administered pension insurance plans on a mandatory, contractual orvoluntary basis. The Group has no further payment obligations once thecontributions have been paid. The contributions are recognised as an employeebenefit expense when they are due. Prepaid contributions are recognised as anasset to the extent that a cash refund or a reduction in the future payments isavailable. (ii) Share-based compensation The Group operates a number of equity-settled, share-based compensation plans.The economic cost of awarding shares and share options to employees isrecognised as an expense in the income statement equivalent to the fair value ofthe benefit awarded. The fair value is determined by reference to optionpricing models, principally Binomial and Monte Carlo models. The charge isrecognised in the income statement over the vesting period of the award. Ateach balance sheet date, the Group revises its estimate of the number of optionsthat are expected to become exercisable. Any revision to the originalestimates is reflected in the income statement with a correspondingadjustment to equity immediately to the extent it relates to past service andthe remainder over the rest of the vesting period. Dividend distribution Under IAS 10 (Events after the Balance Sheet Date) dividends to holders ofequity instruments declared after the balance sheet date are not recognised as aliability as at the balance sheet date. Dividend distribution to the Company'sshareholders is recognised in the Group's financial statements in the period inwhich the dividends are declared to the Company's shareholders. TRANSITION FROM ACCOUNTING PRACTICES GENERALLY ACCEPTED IN THE UK TOINTERNATIONAL FINANCIAL REPORTING STANDARDS Johnson Service Group PLC previously reported the impact of the adoption ofInternational Financial Reporting Standards (IFRS) on the 2004 comparativefinancial information in July of this year. Set out below, in accordance with the provisions of IFRS 1 'First-time Adoptionof International Financial Reporting Standards' are the reconciliations of totalequity and reserves and income from UK GAAP to IFRS. RECONCILIATION OF UK GAAP PROFIT AND LOSS ACCOUNT TO IFRS INCOME STATEMENT FOR THE 26 WEEKS ENDED 26th JUNE 2004 As previously Effect of As restated reported under under IFRS UK GAAP 26th June transition 26th June 2004 to IFRS 2004 £m £m £m REVENUE 168.7 - 168.7Costs recharged to customers (43.0) - (43.0) Revenue excluding costs recharged to customers 125.7 - 125.7 OPERATING PROFIT 10.8 3.4 14.2 OPERATING PROFIT BEFORE INTANGIBLES AMORTISATION AND EXCEPTIONAL ITEMS 14.0 0.3 14.3 Amortisation of goodwill (3.1) 3.1 - Amortisation of intangible assets (0.1) - (0.1) OPERATING PROFIT 10.8 3.4 14.2 Finance costs (net) (1.9) (0.4) (2.3) PROFIT BEFORE TAXATION 8.9 3.0 11.9 Taxation (3.6) (0.1) (3.7) PROFIT FOR THE PERIOD 5.3 2.9 8.2 RECONCILIATION OF UK GAAP PROFIT AND LOSS ACCOUNT TO IFRS INCOME STATEMENT FOR THE 52 WEEKS ENDED 25th DECEMBER 2004 As previously Effect of As restated reported under under IFRS UK GAAP 25th Dec transition 25th Dec 2004 to IFRS 2004 £m £m £m REVENUE 364.0 (0.3) 363.7Costs recharged to customers (86.0) - (86.0) Revenue excluding costs recharged to customers 278.0 (0.3) 277.7 OPERATING PROFIT 20.4 6.9 27.3 OPERATING PROFIT BEFORE INTANGIBLES AMORTISATION AND EXCEPTIONAL ITEMS 29.6 0.3 29.9 Amortisation of goodwill (7.0) 7.0 - Amortisation of intangible assets (0.2) (0.4) (0.6) Exceptional items (2.0) - (2.0) OPERATING PROFIT 20.4 6.9 27.3 Finance costs (net) (4.7) (0.8) (5.5) PROFIT BEFORE TAXATION 15.7 6.1 21.8 Taxation (6.2) 0.6 (5.6) PROFIT FOR THE PERIOD 9.5 6.7 16.2 RECONCILIATION OF UK GAAP BALANCE SHEET TO IFRS BALANCE SHEET AS AT 27th DECEMBER 2003 As previously Effect of As restated reported under under IFRS UK GAAP 27th Dec transition 27th Dec 2003 to IFRS 2003 £m £m £m ASSETS NON-CURRENT ASSETS Goodwill 89.8 (0.7) 89.1 Intangible assets - 1.3 1.3 Property, plant and equipment 64.2 (0.6) 63.6 Rental items 21.4 - 21.4 Deferred tax assets - 12.9 12.9 175.4 12.9 188.3 CURRENT ASSETS Inventories 8.8 - 8.8 Trade and other receivables 53.5 (5.8) 47.7 Cash and cash equivalents 2.2 - 2.2 64.5 (5.8) 58.7 LIABILITIES CURRENT LIABILITIES Trade and other payables 12.8 - 12.8 Other creditors and accruals 55.5 (6.6) 48.9 Current income tax liabilities 2.4 - 2.4 Borrowings 0.3 - 0.3 71.0 (6.6) 64.4 NET CURRENT LIABILITIES (6.5) 0.8 (5.7) NON-CURRENT LIABILITIES Borrowings 45.3 0.3 45.6 Retirement benefit obligations 3.8 30.7 34.5 Deferred tax liabilities 0.7 2.3 3.0 Provisions and other non-current liabilities 14.2 1.8 16.0 64.0 35.1 99.1 NET ASSETS 104.9 (21.4) 83.5 EQUITY CAPITAL AND RESERVES ATTRIBUTABLE TO THE COMPANY'S EQUITY HOLDERS Called up share capital 5.7 - 5.7 Share premium account 8.0 - 8.0 Revaluation reserve 8.5 (8.5) - Other reserves 2.1 - 2.1 Retained earnings 80.6 (12.9) 67.7 TOTAL EQUITY 104.9 (21.4) 83.5 RECONCILIATION OF NET ASSETS PREVIOUSLY REPORTED UNDER UK GAAP TO NET ASSETS AS RESTATED UNDER IFRS AS AT 27TH DECEMBER 2003 £m £m NET ASSETS AS PREVIOUSLY REPORTED UNDER UK GAAP 104.9 IFRS adjustments in respect of: Dividends 7.8 Share options 0.3 Pensions and healthcare benefits (25.6) Goodwill amortisation - Recognition of intangibles - Other (3.9) (21.4) REVISED NET ASSETS AS RESTATED UNDER IFRS 83.5 RECONCILIATION OF UK GAAP BALANCE SHEET TO IFRS BALANCE SHEET AS AT 26th JUNE 2004 As previously Effect of As reported under restated UK GAAP under IFRS 26th June transition 26th June 2004 to IFRS 2004 £m £m £m ASSETS NON-CURRENT ASSETS Goodwill 86.8 5.1 91.9 Intangible assets - 1.6 1.6 Property, plant and equipment 65.6 (1.0) 64.6 Rental items 22.3 - 22.3 Deferred tax assets - 12.2 12.2 174.7 17.9 192.6 CURRENT ASSETS Inventories 9.7 - 9.7 Trade and other receivables 66.2 (10.7) 55.5 Cash and cash equivalents 8.4 - 8.4 84.3 (10.7) 73.6 LIABILITIES CURRENT LIABILITIES Trade and other payables 20.9 - 20.9 Other creditors and accruals 53.1 (6.3) 46.8 Current income tax liabilities 3.1 - 3.1 Borrowings 0.6 - 0.6 77.7 (6.3) 71.4 NET CURRENT ASSETS 6.6 (4.4) 2.2 NON-CURRENT LIABILITIES Borrowings 51.5 0.3 51.8 Retirement benefit obligations 3.6 31.0 34.6 Deferred tax liabilities 1.2 4.2 5.4 Provisions and other non-current liabilities 16.6 1.8 18.4 72.9 37.3 110.2 NET ASSETS 108.4 (23.8) 84.6 EQUITY CAPITAL AND RESERVES ATTRIBUTABLE TO THE COMPANY'S EQUITY HOLDERS Called up share capital 5.8 - 5.8 Share premium account 8.5 - 8.5 Revaluation reserve 8.3 (8.3) - Other reserves 2.1 - 2.1 Retained earnings 83.7 (15.5) 68.2 TOTAL EQUITY 108.4 (23.8) 84.6 RECONCILIATION OF NET ASSETS PREVIOUSLY REPORTED UNDER UK GAAP TO NET ASSETS AS RESTATED UNDER IFRS AS AT 26TH JUNE 2004 £m £m NET ASSETS AS PREVIOUSLY REPORTED UNDER UK GAAP 108.4 IFRS adjustments in respect of: Dividends 2.4 Share options 0.3 Pensions and healthcare benefits (25.5) Goodwill amortisation 3.1 Recognition of intangibles - Other (4.1) (23.8) REVISED NET ASSETS AS RESTATED UNDER IFRS 84.6 RECONCILIATION OF UK GAAP BALANCE SHEET TO IFRS BALANCE SHEET AS AT 25th DECEMBER 2004 As previously Effect of As restated reported under under IFRS UK GAAP 25th Dec transition 25th Dec 2004 to IFRS 2004 £m £m £m ASSETS NON-CURRENT ASSETS Goodwill 111.4 (3.1) 108.3 Intangible assets - 16.3 16.3 Property, plant and equipment 68.3 (2.3) 66.0 Rental items 24.5 - 24.5 Deferred tax assets - 12.9 12.9 204.2 23.8 228.0 CURRENT ASSETS Inventories 19.8 - 19.8 Trade and other receivables 59.8 (5.5) 54.3 Cash and cash equivalents 4.5 - 4.5 84.1 (5.5) 78.6 LIABILITIES CURRENT LIABILITIES Trade and other payables 25.1 - 25.1 Other creditors and accruals 56.7 (6.6) 50.1 Current income tax liabilities 2.0 - 2.0 Borrowings 4.2 - 4.2 88.0 (6.6) 81.4 NET CURRENT LIABILITIES (3.9) 1.1 (2.8) NON-CURRENT LIABILITIES Borrowings 74.4 0.3 74.7 Retirement benefit obligations 3.4 31.0 34.4 Deferred tax liabilities 1.3 5.5 6.8 Provisions and other non-current liabilities 15.7 1.8 17.5 94.8 38.6 133.4 NET ASSETS 105.5 (13.7) 91.8 EQUITY CAPITAL AND RESERVES ATTRIBUTABLE TO THE COMPANY'S EQUITY HOLDERS Called up share capital 5.8 - 5.8 Share premium account 9.5 - 9.5 Revaluation reserve 8.0 (8.0) - Other reserves 2.1 - 2.1 Retained earnings 80.1 (5.7) 74.4 TOTAL EQUITY 105.5 (13.7) 91.8 RECONCILIATION OF NET ASSETS PREVIOUSLY REPORTED UNDER UK GAAP TO NET ASSETS AS RESTATED UNDER IFRS AS AT 25TH DECEMBER 2004 £m £m NET ASSETS AS PREVIOUSLY REPORTED UNDER UK GAAP 105.5 IFRS adjustments in respect of: Dividends 8.2 Share options 0.4 Pensions and healthcare benefits (25.5) Goodwill amortisation 7.0 Recognition of intangibles (0.4) Other (3.4) (13.7) REVISED NET ASSETS AS RESTATED UNDER IFRS 91.8 RECONCILIATION OF CASH FLOWS FOR THE 26 WEEKS ENDED 26th JUNE 2004 Effect of transition UK GAAP to IFRS IFRS £m £m £mCASH FLOWS FROM OPERATING ACTIVITIESProfit before taxation 8.9 3.0 11.9Adjustments for:Finance income and expense 1.9 0.4 2.3Depreciation and amortisation 13.9 (3.1) 10.8Decrease / (increase) in net working capital (0.4) 0.1 (0.3)Profit on sale of fixed assets (0.6) - (0.6)Other non-cash movements 0.3 (0.4) (0.1) Cash generated from operations 24.0 - 24.0 The adoption of IFRS has had no further impact on the June 2004 cash flowposition of the Group, hence only the movements in the reconciliation of profitbefore taxation to cash generated from operations have been disclosed. RECONCILIATION OF CASH FLOWS FOR THE 52 WEEKS ENDED 25th DECEMBER 2004 Effect of transition UK GAAP to IFRS IFRS £m £m £mCASH FLOWS FROM OPERATING ACTIVITIESProfit before taxation 15.7 6.1 21.8Adjustments for:Finance income and expense 4.7 0.8 5.5Depreciation and amortisation 29.4 (6.6) 22.8Decrease / (increase) in net working capital (3.9) 0.2 (3.7)Profit on sale of fixed assets (0.4) - (0.4)Other non-cash movements (0.6) (0.5) (1.1) Cash generated from operations 44.9 - 44.9 The adoption of IFRS has had no further impact on the December 2004 cash flowposition of the Group, hence only the movements in the reconciliation of profitbefore taxation to cash generated from operations have been disclosed. PRINCIPAL ACCOUNTING POLICY CHANGES AND ADJUSTMENTS The revised 2004 financial statements have been prepared under the historicalcost convention. As permitted by IFRS 1, the following optional exemptions fromfull retrospective application of IFRS accounting standards have been adopted: • Business combinations - the Group has elected not to apply IFRS 3 retrospectively to business combinations that took place before the date of transition. As a result, in the opening balance sheet, the net book value of goodwill arising from past business combinations remains as stated under UK GAAP at 27th December 2003. The provisions of IFRS 3 have been applied prospectively from 28th December 2003. • Valuation of properties - the Group has previously not adopted a policy of revaluation but, as permitted by the transitional provisions of FRS15, the carrying amounts of freehold and long leasehold properties reflected previous valuations. As allowed by IFRS 1, the Group has now elected to treat the revalued amount of properties at 28th December 2003 as deemed cost as at that date and will not revalue in future. IFRS 1 also provides three mandatory exemptions to full retrospectiveapplication of International Financial Reporting Standards: • Derecognition of financial assets and financial liabilities - the IAS 39 derecognition requirements are applied from 1st January 2001. Assets and liabilities derecognised before this date are not recognised in the first IFRS financial statements. • Hedge accounting - hedge accounting can be applied to transactions that satisfy the hedge accounting criteria in IAS 39 prospectively from the date of transition. Hedging relationships cannot be designated retrospectively and the supporting documentation cannot be created retrospectively. • Estimates - hindsight is not used to create or revise estimates. Estimates previously made under UK GAAP can only be revised to correct errors and for changes to accounting policies. The principal changes to the accounting policies of the Group as a result of theadoption of IFRS are outlined below. 1. IAS 10 Events after the balance sheet date Under IAS 10, dividends proposed after the balance sheet date do not meet thedefinition of a liability as at the period end and are therefore not accrued.Consequently, proposed dividends previously reported under UK GAAP have beenreversed under IFRS. 2. IFRS 2 Share based payments In accordance with the transitional rules of IFRS 1, IFRS 2 has been applied toshare options granted after 7th November 2002 that have not vested by the 26thDecember 2004. The fair value of employee share options (under the Unapproved Share OptionScheme and the SAYE scheme) have been calculated using a suitable valuationmodel in accordance with the rules set out in IFRS 2. The costs of the shareoptions have been charged to the Income Statement over the period in which theoptions vest, and are adjusted to reflect the expected and actual levels ofvesting. Under UK GAAP the charge for share based payments only applied togrants made at a discount to their market value and was based on intrinsicvalue. 3. IAS 19 Employee benefits The Group has applied the requirements of IAS 19 (revised December 2004) todefined benefit pension schemes, post-retirement healthcare and life insurancebenefits. The actuarial assets and liabilities of these schemes have been shownon the balance sheet and the movement thereon has been reflected in thestatement of recognised income and expense. As a result, obligations aremeasured at discounted present value and plan assets are recorded at fair value. The operating and financing costs are recognised separately in the IncomeStatement; service costs are spread over the service lives of employees (in openschemes) and financing costs are recognised in periods as they arise. The transitional adjustment of £25.5 million to net assets at December 2004 alsoincludes the reversal of the SSAP 24 asset, net of deferred taxation. The IAS19 liability is broadly similar to the FRS 17 liability disclosed in the 2004annual report, the difference being due to the variation in the method ofvaluing scheme assets as prescribed by IAS 19. The Group has elected to disclose current service costs as a charge againstoperating profit whilst the net return on pension assets and interest expense onpension liabilities is charged to interest. Whilst the total pension costscharged to income under SSAP 24 and IAS 19 are broadly similar, the differencein the relative split between operating costs and finance costs results in animprovement of £0.7 million to the 2004 full year operating profit. 4. IAS 38 Goodwill Under IFRS, goodwill arising on acquisition is capitalised and subject to anannual impairment review. Under UK GAAP, goodwill was amortised over itsestimated useful life. In the year to 25th December 2004, goodwill amortisationof £7.0 million was expensed to the profit and loss account in accordance withUK GAAP. Under IFRS, this charge has been reversed from the Group's incomestatement and added back to the net book value of goodwill. For acquisitions made during 2004, £13.9 million of previously identifiedgoodwill has been reclassified as separately identifiable intangible assets,together with other reclassifications from goodwill to intangible assets of £0.4million. The identification of the intangible assets on 2004 businesscombinations has resulted in the recognition of a £4.2 million deferred taxliability, together with a corresponding further increase to goodwill. Theuseful economic life of the intangible assets identified ranges between 4 and 20years and, consequently, additional amortisation of £0.4 million has beencharged to profit before tax under IFRS. 5. Other adjustments The 2004 income statement and balance sheet have been further affected by otherminor changes to accounting treatment as a result of IFRS adoption. The neteffect of these adjustments to profit after tax and net assets is an increase of£0.4 million (reduction of adjusted PBT and adjusted operating profit of £0.2million) and a decrease of £3.4 million, respectively. These changes have arisen as a result of the reclassification of certainproperty leases from operating to finance, the revision of residual values onfreehold properties, deferred taxation treatment and changes to deferred revenueand employee benefit balances. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Johnson Service