23rd Mar 2007 07:01
Johnson Service Group PLC23 March 2007 23rd March 2007 Johnson Service Group PLC Statement for the Financial Year to 31 December 2006 Johnson Service Group PLC, the textile services and facilities management Groupannounces its preliminary results for the financial year ending 31 December2006. Operational Summary • Group profitability reduced due to the poor performance of Stalbridge (Loss of £3.8 million in 2006 against profit of £4.4 million in 2005) • Situation in Stalbridge being addressed and appropriate actions being taken by new management in place • Strong performance from our Corporatewear and Facilities Management Divisions • Encouraging revenue growth at Johnsons Apparelmaster for the second consecutive year • Good performance of the Drycleaning Division • Charles Skinner to be appointed Chief Executive Officer on 16 April • Final dividend maintained at 15 pence (2005: 15 pence) Financial Summary (Continuing) 2006 2005 ChangeTurnover £411m £422m (3%) Turnover (excluding costs recharged to customers) £361m £354m 2%Operating Profit £23.7m £34.4m (31%)Adjusted Operating Profit* £34.9m £37.8m (8%) Exceptional Costs £5.4m (£0.5m) n/aProfit Before Tax £14.5m £26.2m (45%)Adjusted Profit Before Tax* £25.7m £29.6m (13%)Final Dividend Proposed 15.0p 15.0p 0% * Before intangibles amortisation (excluding software) and exceptional items. Simon Sherrard, Chairman of Johnson Service Group, commented: "'Within Johnson Service Group we have a number of market leading businesseswhich traded satisfactorily during 2006. These successes were eclipsed by thepoor performance at our Stalbridge business whose problems are being addressed.As the recovery programme will take longer than previously anticipated, theBoard has lowered its expectations for Group performance in 2007. Under theleadership of our new Chief Executive joining in April, this will be a year ofmaximising the opportunities for our businesses, enabling 2008 to demonstrateour growth potential." For further information, please contact: Johnson Service Group PLC Hudson SandlerSimon Sherrard, Chairman Michael SandlerJim Wilkinson, CFO Sandrine GallienTel: 020 7796 4133 (on the day) Telephone: 020 7796 4133Tel: 01928 704600 (thereafter) www.johnsonplc.com PRELIMINARY STATEMENT 2006 was a challenging year for Johnson Service Group. In November, weidentified issues in our linen rental business, Stalbridge. A recovery programmeis being implemented but it is difficult to be precise as to the timing of theimprovement in margins that our actions will deliver. We are pleased with theperformance of our other businesses, particularly of our Corporatewear andFacilities Management Divisions. We are encouraged by the stability ofApparelmaster, our garment rental business, which has demonstrated organicrevenue growth for the second consecutive year. Finally, we are pleased with theperformance of our Drycleaning Division, which the Board has decided to retainfollowing an auction process, as offers received did not reflect theprofitability and potential for the business. Group Results Total continuing turnover reduced by 3% to £411 million (2005: £422 million),whilst continuing turnover, excluding costs recharged to customers, increased by2% to £361 million (2005: £354 million). The Group interest charge rose to £9.2 million (2005: £8.2 million), reflectinga full year's effect from the acquisitions made during 2005 and our continuinginvestment in the Group's infrastructure. Amortisation of intangible assets(excluding software) increased to £5.8 million (2005: £3.9 million), alsoreflecting the full year effect of previous acquisitions. Profit before taxation from continuing operations was £14.5 million (2005: £26.2million). Adjusted profit before taxation (before intangibles amortisation(excluding software) and net exceptional costs) was £25.7 million (2005: £29.6million) and adjusted fully diluted earnings per share were 32.6 pence (2005:35.8 pence), both on a continuing basis. Basic earnings per share were 22.8pence (2005: 32.4 pence) Net exceptional costs for the year amount to £5.4 million (2005: profit £0.5million). These include restructuring costs for the Group, costs linked to thedisposal process of the Drycleaning Division, write-off of software developmentcosts following a change in the implementation plans for the ERP system andprovisions for uninsured losses. These costs have been partially offset by thegain on the disposal of properties both on a sale and leaseback basis forcurrent drycleaning locations and sales of surplus properties. Johnson Hospitality Services, which provided furniture and catering equipment tothe contract catering market was sold in December 2006, with the remainingelements of the business closed before the year-end. Under IFRS accounting, thetotal of the loss on the disposal and closure as well as the trading loss for2006, net of taxation, has been disclosed as a single line item on the IncomeStatement, amounting to £10.9 million. The Group has prepared its financial statements to 31st December 2006 underInternational Financial Reporting Standards (IFRS) and all comparatives havebeen restated. Finances Net debt at the year-end was £142 million (2005: £137 million). This £5 millionincrease reflected high levels of capital expenditure and additionalcontributions to the defined benefit pension schemes, offset by the proceeds ofproperty disposals. Dividend The Board is recommending a final dividend of 15.0 pence per share (2005: 15.0pence), which will be paid on 9th July 2007 to Shareholders on the register on8th June 2007. Together with the interim dividend of 4.6 pence paid in October2006, this makes a total for the year of 19.6 pence (2005: 19.4 pence). The Board I am pleased to announce that we have appointed Charles Skinner, 46, as ChiefExecutive with effect from 16th April 2007. Charles was previously ChiefExecutive of Brandon Hire Plc for nine years, prior to which he was at SGWarburg, 3i and editor of Management Today. Charles has considerable business tobusiness services experience gained in a rental context, which will be valuablein his new role. The previous Chief Executive, Stuart Graham, resigned on 30th November 2006 andsince then I have been Executive Chairman. David Toon, previously ExecutiveDirector responsible for the Textile Rental and Corporatewear Divisions resignedwith effect from 1st December 2006. Operational review Rental Revenue increased by 6% to £125 million (2005: £119 million), while adjustedoperating profit was 46% down at £9.1 million (2005: £16.7 million). Thedecrease in operating profit was a result of the difficulties at Stalbridge,which offset the good performance of Johnsons Apparelmaster. Stalbridge Linen Services Stalbridge, market leaders in the premium hotel, catering and corporatehospitality sector, reported like-for-like turnover up 10% to £39 million and anadjusted operating loss of £3.8 million for the period against a profit of £4.4million in the previous year. A new ERP system was installed during April 2006 which gave rise to someinvoicing problems which masked that a disproportionate level of costs werebeing incurred in the business. This did not become apparent until November,partly due to the seasonality of this activity and partly due to theimprovements made to the ERP system during the course of the year, thus allowingproper management information to be available. A new management team was put into the company and the issues are beingaddressed on two fronts. Firstly, we are confident that we have largely resolvedany outstanding issues with the ERP system and the invoicing. However, theintroduction of the system during 2006 resulted in a weakening of debtorcontrol, largely through invoicing errors and this has directly resulted in amuch higher level of potential bad debts than should be expected and a higherlevel of debtors at the year end. Whilst we believe we have made appropriatelevels of provisions, the remaining debtors will take several months to reduceto an acceptable level. We are addressing the cost base of the business to bring it in line with theexpected revenue. Specific actions being undertaken include the reallocation ofproduction to a new facility in Hinckley, the closure of inefficient productioncapacity and a rationalisation of distribution. We are confident that Stalbridge will recover to previous operating marginlevels but it will be 2008 before we see the full benefit of the managementactions that are currently being undertaken. Johnsons Apparelmaster Apparelmaster, the UK leader in the laundering and rental of workwear, which hadpreviously suffered from several years of sales decline and pricing pressure,achieved its second successive year of organic revenue growth, with a 3.1%increase in its core recurring revenue. Since April last year, we have benefited from the exit from the market place ofthe third largest participant and several smaller independent companies. Thereduction in capacity in the industry has resulted in greater price stability,allowing us better control of our margins which remained broadly flat at almost14%. In February 2007, another large provider of linen and workwear rentalservices went into administration, presenting us with further opportunities. The success of our ongoing programme to improve continuously the quality ofservice was confirmed during the year with customer retention now at 93% andoverall customer satisfaction levels at 80%, the third consecutive year ofimprovement. We are investing in our plant infrastructure to accelerate efficiencies in thebusiness. In September, a new plant was commissioned in Basingstoke to enhanceservice to large food production customers and an existing plant in Birminghamwas refurbished to serve West Midlands customers. During the second quarter of2007, a new plant will be commissioned in Leeds, to provide extra capacity forYorkshire customers and the head office of the business will be relocated toFulwood, near Preston, alongside our new workwear warehouse. In addition, in January 2007, we acquired Texicare Ltd for £3 million. We expectthis acquisition to enhance performance further as the business is integrated. As market leader, we believe that we have a first class business which should beable to continue its strong cash generation. The outlook for this business inthe medium term continues to improve as the price pressure of some of its maincosts reduce. Corporatewear Division The Corporatewear Division reported adjusted operating profit growth of 8% to£12.3 million (2005: £11.4 million) and the operating margin increased to 14.8%(2005: 13.1%), as savings from the integration of the acquisitions made over thelast three years are realised. The Division experienced a slight decline in revenue at £95.4 million, as one ofour major customers delayed a new uniform rollout to 2007. In addition, ourincreasingly effective supply chain is leading to some price deflation as wecontinue to move to more efficient suppliers and pass on the benefits achievedto our customers. Following on from the successful integration of the management, sales and supplychain functions within this Division, during the latter part of 2006 weinitiated an integration plan for the support functions, which will be largelyimplemented during 2007. There will be further rationalisation of properties andfunctions to reduce overheads, whilst maintaining the brand names, which are allvaluable in their niche markets. The Corporatewear Division has achieved a market leading position over the lastthree years, by a combination of acquisition, integration, driving efficiencyand selling a fully out-sourced service model. This Division is now clearly theUK's largest provider of clothing for people at work with the number of garmentssupplied in 2006 up 11% over the prior year at 14.2 million, with almost 4million people a day wearing our products. Its industry leading serviceoffering, combined with the strength of its procurement, has led to significantnew business wins. The amount of new business captured, together with oursuccess in renewing the contracts of many of our major customers, are allpositive indications for the future of the business. The Division is gradually expanding its customer base overseas, by winning anincreasing amount of new business in Europe and through partnering with anAmerican company to provide a worldwide solution. Indeed, the largest contractsecured during 2006 was for a global distribution company won with our Americanpartners. Since the proportion of employees in the UK and Europe who wearuniforms in the workplace is still relatively low in comparison to the US, weremain convinced there is considerable future potential in this market place. Drycleaning Division Total revenue fell by 2% to £99.2 million (2005: £101.4 million) and adjustedoperating profit fell by 7% to £9.1 million (2005: £9.8 million). The result for2005 benefited from £1.8 million of routine property disposals with no similarbenefit arising in 2006. The sale and leasebacks completed in 2006 resulted inan additional rent charge of £1.0 million in the second half. Excluding theeffect of these two factors the underlying adjusted operating profit increasedby 26%. Our market leading retail Drycleaning business, which encompasses JohnsonsCleaners, Jeeves of Belgravia and Sketchley, saw like-for-like revenues up 1.1%for the full year thanks to a management restructure at the end of the firstquarter, and the implementation of new marketing initiatives. The retail operation is concentrating on growing revenue through several actionsincluding a focus on our Priority Club initiative, which is already yieldinggood results. In addition, we are putting more emphasis on the location of ourshops as this is another key factor in future profitability. We are moving tomore high convenience locations, for example during 2006, we opened new brancheswithin Tesco and Sainsbury stores and Drive-ins in Cardiff, Bolton, Taunton,Nottingham and Wakefield. In addition to the action taken to stimulate consumer demand, a renewed focus ontight cost control lifted the operating margins from 5.1% in the first half to10.2% in the second half of the year. This was helped by a branchrationalisation programme, which has seen the total number of branches fall to548 (2005: 597). We saw some benefit from these actions during the second halfof 2006 but expect to benefit fully during 2007. Alex Reid, our distribution operation, performed well with revenue up 11%following the successful acquisition and integration of Firbimatic in July 2005.In addition, Alex Reid has been able to expand its services to offer maintenancecontracts to independent Drycleaning customers following the merger of itsengineers with those of our retail operation. Alex Reid also has the European licence rights to the GreenEarth(R) drycleaningprocess and during 2007 will focus on marketing its attractions to the 50,000drycleaners operating in Europe. GreenEarth(R) is environmentally, as well astechnically, a far more preferable option than alternative drycleaning solvents. In 2006, following several expressions of interest, the Board decided to conducta formal auction for the potential sale of our consumer facing DrycleaningDivision. Although a number of offers were received, in our opinion, none ofthem reflected the profitability of the business and would have resulted in anunacceptable level of earnings dilution. We have, therefore, decided to retainthe business, giving the management a period of stability in which to implementthe many ideas they have for moving it forward. Facilities Management Division Our Facilities Management Division had a very successful year. Revenue excludingcosts recharged to customers increased by 13.9% to £53.1 million, while totalrevenue fell by 10% to £103.4 million (2005: £115.0 million), the latter beingaffected by reduced charges to customers. Adjusted operating profit increased by70% to £7.5 million with the operating margin of the Division reaching 14.1%(2005: 9.4%). The results include a full year's contribution by SGP Property Services (SGP),acquired in October 2005. Excluding the effects of the acquisition the Divisionstill achieved organic adjusted operating profit growth of 23%. SGP delivered excellent organic growth, with significant new business winsincluding Superdrug, Ladbrokes, and Phones 4U. They have also successfullyrenewed contracts with Arcadia, Woolworths and Boots and have significantlyincreased sales with Carphone Warehouse, Alliance & Leicester, BHS and Tesco.The senior management team has been strengthened with the appointment of aTechnical Director, a Property Director and an Operations Director who will beappointed shortly. Workplace Management (WPM) also demonstrated excellent added value sales and wonnew contracts including QCA, Water UK, Shell Retail and the Home OfficeImmigration Centre as well as successfully extending or renewing contracts atInverness Airport, Citigroup, Norfolk Constabulary and Shell Employee BenefitTrust Housing. Workplace Engineering, our specialist mechanical and electrical engineeringbusiness, demonstrated significant top line growth in a highly competitivemarket, increasing turnover from an annualised £4.6 million to £14.2 million injust over two years. The business, originally created by two acquisitions, isnow fully integrated and delivered 20% operating profit growth to £1.3 millionat an operating margin of 9.1%. Significant contract wins during 2006 includedBHS, Superdrug and The School of Midwifery. Although around half of the revenueof the business is reactive one-off project work, there has also beensignificant growth in contracted maintenance, which is expected to continue togrow as a proportion of total revenue in 2007. The services we offer through our Facilities Management Division uniquelycombine our expertise in property, project and facilities management withprocurement, to offer customers a high quality service at the best value formoney. Since the Division was created three years ago it has delivered strongorganic growth supported by some significant acquisitions. With the integrationof most of the back office functions of SGP and WPM almost complete, therationalisation of the management structure and the appointment of a newDivisional Sales Director, we are confident the business will continue itsimpressive growth rate. Outlook In the current year, we see growth potential in our Corporatewear and FacilitiesManagement Divisions, and we believe that Apparelmaster and Drycleaning willcontinue to make important contributions, both to profitability and cash flow.However, in view of the fact that the recovery programme in Stalbridge will takelonger than previously anticipated, the Board has lowered its expectations forGroup performance in 2007. We believe sufficient actions are being taken butthese are not expected to deliver significant benefits until 2008. Simon Sherrard Executive Chairman 23rd March 2007 JOHNSON SERVICE GROUP PLC Consolidated Income Statement - UNAUDITED Year ended Year ended 31 December 31 December 2006 2005Note £m £m CONTINUING OPERATIONS: 2 REVENUE FROM CONTINUING OPERATIONS 410.9 422.2 Costs recharged to customers (50.3) (68.4) 2 Revenue excluding costs recharged to customers 360.6 353.8 2 OPERATING PROFIT 23.7 34.4 2 OPERATING PROFIT BEFORE INTANGIBLES AMORTISATION 34.9 37.8 AND EXCEPTIONAL ITEMS Amortisation of intangible assets (excluding software) (5.8) (3.9) 3 Exceptional items - Restructuring and environmental costs (20.4) (3.9) - Profit on disposal of property 15.0 4.4 2 OPERATING PROFIT 23.7 34.4 5 Finance costs (10.0) (8.6) 5 Finance income 0.8 0.4 PROFIT BEFORE TAXATION 14.5 26.2 6 Taxation (1.1) (7.3) PROFIT FOR THE YEAR FROM CONTINUING OPERATIONS 13.4 18.9 DISCONTINUED OPERATIONS: 10 LOSS FOR THE YEAR FROM DISCONTINUED OPERATIONS (10.9) (1.9) PROFIT FOR THE YEAR 2.5 17.0 8 EARNINGS PER SHARE * Basic earnings per Share From continuing operations 22.8p 32.4p From discontinued operations (18.6p) (3.2p) From continuing and discontinued operations 4.2p 29.2p Fully diluted earnings per Share From continuing operations 22.6p 31.8p From discontinued operations (18.4p) (3.2p) From continuing and discontinued operations 4.2p 28.6p 7 ORDINARY DIVIDENDS PAID AND PROPOSED Final dividend proposed 15.0p - Interim dividend proposed and paid 4.6p 4.4p Final dividend proposed and paid - 15.0p * Earnings per share before intangibles amortisation (excluding software) and exceptional items are shown in Note 8. Consolidated Statement of Recognised Income and Expense - UNAUDITED Year ended Year ended 31 December 31 December 2006 2005 £m £m Actuarial gain / (loss) on defined benefit pension plans and healthcare benefits 14.7 (15.7) Taxation in respect of actuarial (gain) / loss (4.4) 4.7 Net movement on reserves in respect of defined benefit actuarial gains and losses 10.3 (11.0) Cash flow hedges (net of tax) 0.3 (0.1) NET INCOME / (EXPENSE) RECOGNISED DIRECTLY IN EQUITY 10.6 (11.1) Profit for the year 2.5 17.0 TOTAL RECOGNISED INCOME FOR THE YEAR 13.1 5.9 Consolidated Group Balance Sheet - UNAUDITED Year ended Year ended 31 December 31 December 2006 2005Note £m £m ASSETS NON-CURRENT ASSETS Goodwill 140.0 140.7 Intangible assets 51.9 50.6 Property, plant and equipment 60.8 68.0 Textile Rental items 27.6 30.1 Deferred income tax assets 13.4 17.9 293.7 307.3 CURRENT ASSETS Inventories 29.5 30.2 Trade and other receivables 71.3 65.0 Current income tax assets 0.7 - Derivative financial instruments 0.6 0.2 Cash and cash equivalents 11.3 7.5 113.4 102.9 LIABILITIES CURRENT LIABILITIES Trade and other payables 29.4 26.9 Other creditors and accruals 69.0 61.1 Current income tax liabilities - 2.7 Borrowings 1.1 2.1 Derivative financial instruments 0.4 0.2 Provisions 8.5 4.8 108.4 97.8 NET CURRENT ASSETS 5.0 5.1 NON-CURRENT LIABILITIES Borrowings 152.7 142.6 9 Retirement benefit obligations 30.7 50.4 Deferred income tax liabilities 12.6 14.6 Provisions 8.2 6.8 Other non-current liabilities 1.9 8.1 206.1 222.5 NET ASSETS 92.6 89.9 EQUITY CAPITAL AND RESERVES ATTRIBUTABLE TO THE COMPANY'S EQUITY HOLDERS Called up share capital 5.9 5.9 Share premium 12.7 11.9 Other reserves 2.4 2.1 Retained earnings 71.6 70.0 TOTAL EQUITY 92.6 89.9 Consolidated Cash Flow Statement - UNAUDITED Year ended Year ended 31 December 31 December 2006 2005Note £m £m CASH FLOWS FROM OPERATING ACTIVITIES Profit for the year 2.5 17.0 Adjustments for: Income tax expense - continuing operations 1.1 7.3 - discontinued operations (3.2) (0.7) Finance income and expense 9.2 8.2 Depreciation 28.6 27.1 Amortisation 7.3 4.3 Write off of intangible assets 3.9 - (Increase) / Decrease in inventories 0.7 (3.5) (Increase) / Decrease in trade and other receivables (3.9) (2.8) Increase / (Decrease) in trade and other payables 1.4 2.9 Profit on sale of property, plant and equipment (14.5) (6.3) Loss on sale of investments 11.7 - 9 Contribution to defined benefit pension schemes (4.8) - Other non-cash movements 3.5 (0.3) Cash generated from operations 43.5 53.2 Interest paid (9.5) (7.6) Taxation paid (4.3) (6.2) Net cash flows generated from operating activities 29.7 39.4 CASH FLOWS FROM INVESTING ACTIVITIES 10 Acquisition of subsidiaries (net of cash acquired) (4.4) (56.2) 10 Net proceeds from sale of investments in other companies 1.4 - Purchase of property, plant and equipment (14.9) (14.1) Proceeds from sale of property, plant and equipment 24.8 11.5 Purchase of intangible assets (11.8) (9.1) Purchase of textile rental items (24.1) (24.8) Proceeds from sale of textile rental items 3.9 3.5 Interest received 0.8 0.2 Net cash used in investing activities (24.3) (89.0) CASH FLOWS FROM FINANCING ACTIVITIES Net proceeds from borrowings 86.0 178.2 Repayments of borrowings (76.0) (116.2) Capital element of finance leases (1.1) (1.1) Net proceeds from issue of ordinary shares 0.8 2.5 Net proceeds from sale of own shares in relation to employee share schemes 0.2 - Dividends paid to company shareholders (11.5) (10.8) Net cash (used in) / generated from financing activities (1.6) 52.6 11 Net increase in cash and cash equivalents 3.8 3.0 Cash and cash equivalents at beginning of period 7.5 4.5 12 Cash and cash equivalents at end of period 11.3 7.5 NOTES TO THE PRELIMINARY ANNOUNCEMENT 1. Changes in Accounting Policy This Preliminary Announcement, which has been agreed with the Auditors, is forthe year ended 31st December 2006. The financial information has been preparedin accordance with International Financial Reporting Standards and InternationalFinancial Reporting Interpretations Committee (IFRIC) interpretations issued andendorsed by the European Union (EU) as at the time of preparing this statement(March 2007) (IFRS). The Johnson Service Group PLC consolidated financial statements for the yearended 31st December 2005 were prepared in accordance with UK Generally AcceptedAccounting Principles (UK GAAP). The financial information in respect of the year ended 31st December 2005 hasbeen restated to comply with IFRS. Reconciliations of the Income Statement andBalance Sheet under IFRS and as presented previously under UK GAAP are stated inthe Interim Report dated 13th September 2006. Johnson Service Group PLC has elected a date of transition to IFRS of 28thDecember 2003. The Group previously reported the impact of the adoption of IFRSon the 2004 comparative financial information in July 2005. Supplementary IFRSinformation was provided in the 2005 Annual Report and the 2006 Interim Report,together with summary reconciliations and descriptions of the effect of thetransition from UK GAAP to IFRS on the Group's equity and its net income andcash flows. Further information will also be provided within the 2006 GroupAnnual Report. The financial information has been prepared using accountingpolicies consistent with those set out in the 2006 Interim Report. The Group has taken advantage of a number of exemptions under IFRS 1 "First TimeAdoption of IFRS" namely: • Not to restate its financial information for business combinations occurring before 28th December 2003. • Not to apply IFRS 2 "Share Based Payments" to share options granted before 7th November 2002 and vested by 1st January 2005. • To use the revaluation amount or historic cost of an item of property, plant and equipment at, or before, 28th December 2003 as deemed cost at the date of valuation. 2. Segmental Information - Analysis of Revenue, Operating ProfitBefore Exceptional Items and Intangibles Amortisation and Profit Before Taxation Segment information is presented in respect of the Group's business segments,which are based on the Group's management and internal reporting structure as at31st December 2006. Inter-segment pricing is determined on an arm's length basis. Geographical segments Revenue originates wholly within the United Kingdom and as a result, nogeographical segments are presented within this announcement. Business segments The Group comprises the following main business segments: • Textile rental services - market leader in the UK in the field ofworkwear rental and laundering, in linen for the premium hotel, catering andcorporate hospitality sector and (up until 31st December 2006) the hire ofcatering equipment and furniture; • Corporatewear - offering a comprehensive range of workwear andworkplace clothing; • Drycleaning - the nation's largest drycleaner, with over 540 storesnationwide offering a range of drycleaning, laundry and ironing services, carpetcleaning, upholstery cleaning, wedding dress cleaning and suede & leathercleaning and the supply of drycleaning consumables; and • Facilities management - delivering building, facilities and propertymanagement services to many leading public, commercial and retail organisationsthroughout the UK. Year ended 31st December 2006 Textile Corporatewear Drycleaning Facilities Unallocated Total Rental Management £m £m £m £m £m £mREVENUERevenue 125.2 95.4 99.2 104.6 - 424.4Inter-segment revenue - (12.3) - (1.2) - (13.5)Revenue - Continuing 125.2 83.1 99.2 103.4 - 410.9Revenue - Discontinued 8.0 - - - - 8.0 133.2 83.1 99.2 103.4 - 418.9REVENUE EXCLUDING COSTS RECHARGEDTO CUSTOMERSRevenue 125.2 95.4 99.2 54.3 - 374.1Inter-segment revenue - (12.3) - (1.2) - (13.5)Revenue excluding costs recharged 125.2 83.1 99.2 53.1 - 360.6to customers - ContinuingRevenue - Discontinued 8.0 - - - - 8.0 133.2 83.1 99.2 53.1 - 368.6 RESULTOperating profit before intangibles 9.1 12.3 9.1 7.5 (3.1) 34.9amortisation (excluding software)and exceptional itemsAmortisation of intangible assets (1.0) (2.6) (0.2) (2.0) - (5.8)(excluding software)Exceptional items - Restructuring and other costs (6.2) (1.7) (5.7) (1.1) (5.7) (20.4) - Profit on disposal of property - 1.5 13.5 - - 15.0 Operating profit 1.9 9.5 16.7 4.4 (8.8) 23.7 Finance costs (10.0)Finance income 0.8Profit before taxation 14.5Taxation (1.1) Profit for the period - Continuing 13.4Discontinued operations - Textile (10.9)rental services Profit for the year 2.5 2. Segmental Information - Analysis of Revenue, Operating ProfitBefore Exceptional Items and Intangibles Amortisation and Profit Before Taxation/continued... Year ended 31st December 2005 Textile Corporatewear Drycleaning Facilities Unallocated Total Rental Management £m £m £m £m £m £mREVENUERevenue 118.7 99.7 101.4 115.1 - 434.9Inter-segment revenue - (12.6) - (0.1) - (12.7)Revenue - Continuing 118.7 87.1 101.4 115.0 - 422.2Revenue - Discontinued 9.7 - - - - 9.7 128.4 87.1 101.4 115.0 - 431.9REVENUE EXCLUDING COSTS RECHARGEDTO CUSTOMERSRevenue 118.7 99.7 101.4 46.7 - 366.5Inter-segment revenue - (12.6) - (0.1) - (12.7)Revenue excluding costs recharged 118.7 87.1 101.4 46.6 - 353.8to customers - ContinuingRevenue - Discontinued 9.7 - - - - 9.7 128.4 87.1 101.4 46.6 - 363.5 RESULTOperating profit before intangibles 16.7 11.4 9.8 4.4 (4.5) 37.8amortisation (excluding software)and exceptional itemsAmortisation of intangible assets (0.8) (2.5) - (0.6) - (3.9)(excluding software)Exceptional items - Restructuring and other costs (1.2) (2.1) - (0.6) - (3.9) - Profit on disposal of property 2.1 - 2.3 - - 4.4 Operating profit 16.8 6.8 12.1 3.2 (4.5) 34.4 Finance costs (8.6)Finance income 0.4Profit before taxation 26.2Taxation (7.3) Profit for the period - Continuing 18.9Discontinued operations - Textile (1.9)rental services Profit for the year 17.0 The operating profit before intangibles amortisation (excluding softwareamortisation) and exceptional items from Drycleaning in 2005 includes £1.8million of profit from the disposal of properties formerly occupied by theDrycleaning business. No such profit is included in 2006. Revenue from continuing operations originates in the United Kingdom. There is nomaterial difference between revenue by origin and by destination. Facilities management revenue comprises fees receivable and costs recharged tocustomers where the relationship with the supplier of services is that ofprincipal. The element of revenue which comprises supplier costs recharged tocustomers has been shown separately on the income statement to aidinterpretation of the business. In view of the resignation of the two Executive Directors during the year theGroup CFO, who was the only remaining participant in the Long Term IncentivePlan, has surrendered the Award made to him under the Plan in 2005. The effectof this has been included in unallocated costs in 2006. 3. Exceptional Items Year ended 31st Year ended December 2006 31st December 2005 £m £mRestructuring costs - Textile Rental Services (0.8) (0.2) - Corporatewear (1.7) (2.0) - Drycleaning (2.9) (0.1) - Facilities Management (1.1) (0.5) - Group (1.6) (0.1) - Total (8.1) (2.9) Onerous lease and environmental costs (1.7) (1.0)Write-off of software development costs (3.9) -Drycleaning - costs relating to the potential disposal (2.6) -Uninsured losses (4.1) - (20.4) (3.9)Property disposals - Sale and leaseback 13.0 - - Others 2.0 4.4 - Total 15.0 4.4 Total exceptional items (5.4) 0.5 Restructuring costs are in respect of the integration of the acquisitions madein the previous two years in respect of Corporatewear and Facilities Management.Costs incurred by the Textile Rental division are in respect of the relocationof the Johnsons Apparelmaster head office. Drycleaning restructuring costsincluded £2.1 million in relation to the closure of 60 shops, as part of therepositioning of the business. Group restructuring costs relate to thetermination costs of two Executive Directors and the redundancy of other Groupstaff. Other than redundancy costs, restructuring costs include the write offof fixed and other assets and provisions for onerous leases in relation to shopclosures. 2005 restructuring costs relate to the reorganisation of the operation andmanagement of recently acquired businesses. Onerous lease and environmental costs represent a reassessment of expectedfuture costs arising from significant changes in circumstances on specificproperties. In 2005 the cost related to the anticipated environmentalremediation cost of vacating an existing site and asbestos cleanup. Following the restructuring of the Group, the ongoing integration process andthe evaluation of the sale of the Drycleaning business, costs incurred on thedevelopment of the SAP system include £3.9 million of costs which have no futurevalue to the ongoing business. The Group had been in discussion with potential purchasers of its Drycleaningbusiness. The costs included above relate to professional fees incurred duringthe process including corporate finance, legal and tax advice and thepreparation of vendor due diligence. Uninsured losses represent the costs incurred to date on the defence of twoclaims for which the Group does not have insurance cover together with aprovision for the estimated settlement value. Property disposals relate to the sale and leaseback, on an operating leasebasis, of 79 properties. In addition, the gain of £2.0 million related to twowarehouse facilities of the Corporatewear division and three surplus Drycleaningproperties. The gain in 2005 was in relation to the disposal of a small groupof trading properties and a textile rental facility. 4. Adjusted Profit Before Taxation The reconciliation of profit before taxation from continuing operations andadjusted profit before taxation from continuing operations is as follows: Year ended Year ended 31st December 31st December 2006 2005 £m £mProfit on ordinary activities before taxation 14.5 26.2Add intangibles amortisation (excluding software) 5.8 3.9Add restructuring and environmental costs 20.4 3.9Less profit on disposal of properties (15.0) (4.4)Adjusted profit before taxation 25.7 29.6 5. Finance Costs and Income Year ended Year ended 31st December 2006 31st December 2005 £m £m Interest payable on bank loans and overdrafts (8.8) (7.3)Amortisation of bank loan issue cost (0.2) (0.1)Interest payable on obligations under finance leases (0.3) (0.3) (9.3) (7.7) Fair value of financial derivatives not qualifying for hedge accounting (0.2) -Interest payable before notional interest on defined benefit liabilities and (9.5) (7.7)assets Notional interest on defined benefit liabilities and assets:- Interest cost on pension scheme liabilities (9.9) (8.9)- Expected return on pension scheme assets 9.5 8.1- Interest cost on Private healthcare scheme (0.1) (0.1)Finance costs (10.0) (8.6) Fair value of financial derivatives not qualifying for hedge accounting 0.6 0.2Other interest income 0.2 0.2Finance income 0.8 0.4 Net finance expense (9.2) (8.2) 6. Taxation Year ended Year ended 31st December 31st December 2006 2005 £m £mCURRENT TAXUK corporation tax charge for the year - continuing 5.3 7.2Adjustment in relation to previous years - continuing (1.5) (0.1)Current tax charge for the year - continuing 3.8 7.1 DEFERRED TAXOrigination and reversal of timing differences - continuing (2.6) 0.2Adjustment in relation to previous years - continuing (0.1) -Deferred tax (credit) / charge for the year - continuing (2.7) 0.2 Total charge for taxation (Continuing Operations) included 1.1 7.3 in the Income Statement The tax relief on the restructuring and other costs incurred in the current yearhas reduced the charge for taxation by £4.4 million (2005: £0.8 million). Thetax relief on intangibles amortisation (excluding software) has reduced thecharge for taxation by £2.7 million (2005: £0.2 million). The tax charge on theproperty disposals has increased the charge for taxation by £1.9 million (2005:Nil). 7. Dividends Year ended Year ended 31st December 31st December 2005 2006Ordinary dividends paid and proposedFinal dividend proposed 15.0p -Interim dividend proposed and paid 4.6p 4.4pFinal dividend proposed and paid - 15.0p On 20th October 2006 an interim dividend of 4.6p was paid on the Ordinary sharesutilising £2.7 million of Shareholders' funds. A proposed final dividend of15.0p, will, subject to Shareholder approval, be paid on 9th July 2007 toShareholders on the register of members on 8th June 2007. If approved, thefinal dividend will reduce Shareholders' funds by £8.9 million. The Trustee ofthe ESOP has waived the entitlement to receive dividends on the Ordinary sharesheld by the Trust. In accordance with International Accounting Standards, the PreliminaryAnnouncement does not reflect a liability in respect of the proposed dividend. 8. Earnings Per Share Year ended 31st Year ended 31st December 2006 December 2005 £m £mProfit for the financial year attributable to Ordinary Shareholders 13.4 18.9 from continuing operationsLoss for the financial year attributable to Ordinary Shareholders (10.9) (1.9) from discontinued operationsIntangibles amortisation, excluding software (net of taxation) 3.1 3.7Exceptional costs from continuing operations (net of taxation) 2.9 (1.3)Exceptional costs from discontinued operations (net of taxation) (Note 10) 9.2 0.7Adjusted profit attributable to Ordinary Shareholders 17.7 20.1 Weighted average number of Ordinary shares 58,843,450 58,208,126Dilutive options 709,375 1,149,222Fully diluted number of Ordinary shares 59,552,825 59,357,348 Basic earnings per shareFrom continuing operations 22.8p 32.4pFrom discontinued operations (18.6p) (3.2p)From continuing and discontinued operations 4.2p 29.2pAdjustment for intangibles amortisation (continuing operations) 5.2p 6.3pAdjustment for exceptional costs (continuing operations) 4.9p (2.2p)Adjustment for exceptional costs (discontinued operations) 15.8p 1.2pAdjusted basic earnings per share from continuing operations 32.9p 36.5pAdjusted basic earnings per share from discontinued operations (2.8p) (2.0p)Adjusted basic earnings per share from continuing and discontinued operations 30.1p 34.5p Diluted earnings per shareFrom continuing operations 22.6p 31.8pFrom discontinued operations (18.4p) (3.2p)From continuing and discontinued operations 4.2p 28.6pAdjustment for intangibles amortisation (continuing operations) 5.1p 6.2pAdjustment for exceptional costs (continuing operations) 4.9p (2.2p)Adjustment for exceptional costs (discontinued operations) 15.6p 1.2pAdjusted diluted earnings per share from continuing operations 32.6p 35.8pAdjusted diluted earnings per share from discontinued operations (2.8p) (2.0p)Adjusted diluted earnings per share from continuing and discontinued operations 29.8p 33.8p 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 ofintangibles amortisation (excluding software) and exceptional items, all net oftaxation, and are considered to show the underlying results of the Group. For diluted earnings per share, the weighted average number of Ordinary sharesin issue is adjusted to assume conversion of all dilutive potential Ordinaryshares. The Company has dilutive potential Ordinary shares arising from shareoptions granted to employees where the exercise price is less than the averagemarket price of the Company's Ordinary shares during the year. Options are dilutive at the profit from continuing operations level and so, inaccordance with IAS 33, have been treated as dilutive for the purpose of dilutedearnings per share from continuing and discontinued operations. There were no events occurring after the balance sheet date that would havechanged significantly the number of Ordinary shares or potential Ordinary sharesoutstanding at the balance sheet date, if those transactions had occurred beforethe end of the reporting period. 9. Retirement Benefit Obligations The Group has applied the requirements of IAS 19 Employee Benefits (revisedDecember 2004) to its employee pension schemes and post-retirement healthcarebenefits. As part of the Group's objective to reduce its overall pension liability,additional contributions of £4.2 million and £0.6 million were paid to theJohnson Group Staff Pension Scheme and the WML Final Salary Pension Schemerespectively, during the period to 31st December 2006. Following discussions with the Group's appointed actuary it has been identifiedthat an actuarial gain of £14.7 million should be recognised in the year to 31stDecember 2006. This is as a result of the scheme assets and liabilitiesperforming differently to previous assumptions and changes to the assumptionsused in calculating scheme liabilities. The gross retirement benefit liability and associated deferred tax assetthereon, together with the net liability is shown below: Year ended Year ended 31st December 2006 31st December 2005 £m £m Gross retirement benefit liability (30.7) (50.4)Deferred tax asset thereon 10.1 15.1Net liability (20.6) (35.3) 10. Acquisitions and Disposals Acquisitions Other than for the purchase in cash of £0.1 million of customer lists, the Grouphas not made any acquisitions during 2006. Deferred consideration of £4.3million in respect of acquisitions completed in earlier years was paid. Disposals During the period, the Group disposed of the trade and assets of JohnsonEnvironmental Pest Control Limited and Johnson Hospitality Services Limited. The Directors do not consider Johnson Environmental Pest Control Limited to meetthe definition of a discontinued operation, as the entity did not represent aseparate major line of business or geographical area of business. Revenues ofthe business up until the date of disposal are therefore included within theappropriate line of the income statement within continuing operations. Proceedsfrom the disposal of the trade and assets are included within the cash flowstatement heading 'proceeds from sale of investments in other companies'. The post-taxation loss on disposal of the trade and assets of JohnsonEnvironmental Pest Control Limited is £0.3 million, after writing-off goodwillof £0.9 million. Net sales proceeds were £0.9 million. The disposal of the trade and assets of Johnson Hospitality Services Limiteddoes constitute a discontinued operation. Set out below, in accordance withIFRS 5, is the analysis of the post-taxation loss reported as being fromdiscontinued operations within the Income Statement. Year ended Year ended 31st December 2006 31st December 2005 £m £mRevenue from discontinued operations 8.0 9.7 Loss before taxation from discontinued operations (2.4) (2.6)Taxation 0.7 0.7Loss for the year (1.7) (1.9) Proceeds from disposal (net of disposal costs) 0.5 -Total net assets disposed of (9.9) -Goodwill written off (0.5) -Provision for onerous leases (1.8) -Pre-tax loss on disposal (11.7) -Taxation 2.5 -Loss on disposal (9.2) - Retained loss from discontinued operations (10.9) (1.9) Included within the 2005 loss for the year are exceptional reorganisation costs,net of taxation, of £0.7 million. Costs of disposal include legal and professional fees and workforce redundancycosts. Total net assets disposed of include the write-off of costs incurred onthe development of the SAP system for Johnson Hospitality Services Limited. 10. Acquisitions and Disposals /Continued)... The cash flows (excluding proceeds from disposal) generated during the year fromdiscontinued operations included within the consolidated cash flow statement areas follows: Year ended Year ended 31st December 31st December 2006 2005 £m £m Net cash flows used in operating activities (1.8) (1.5)Net cash used in investing activities (2.2) (2.3)Net cash flows (4.0) (3.8) 11. Reconciliation Of Net Cash Inflow To Movement In Net Debt Year ended Year ended 31st December 2006 31st December 2005 £m £m Increase in cash in year 3.8 3.0Cash (inflow) on change in debt and lease financing (8.9) (60.9)Change in net debt resulting from cash flows (5.1) (57.9) Finance leases - new - (0.6)Issue costs of new bank loans - 0.9Amortisation of issue costs of bank loans (0.2) (0.1)Loans and leases acquired with subsidiaries - (5.1)Movement in net debt in year (5.3) (62.8)Opening net debt (137.2) (74.4)Closing net debt (142.5) (137.2) 12. Analysis of net debt At 31st December Cash Flow Other Non-cash At 31st December 2005 Changes 2006 £m £m £m £m Cash and cash equivalents 7.5 3.8 - 11.3Debt due within one year (1.0) 1.0 - -Debt due after more than one year (138.2) (11.0) (0.2) (149.4)Finance leases (5.5) 1.1 - (4.4) (137.2) (5.1) (0.2) (142.5) Non-cash changes represent the effects of amortising issue costs relating tobank loans. 13. Abridged Accounts The financial information set out above does not constitute the Company'sstatutory accounts for the years ended 31st December 2006 or 31st December 2005within the meaning of Section 240 of the Companies Act 1985, but is derived fromthose accounts, subject to the adjustments in respect of the adoption of IFRS,as previously published. Statutory accounts for 2005 have been delivered to the Registrar of Companies.The Auditors have reported on those accounts; their report was unqualified anddid not contain a statement under s237(2) or (3) of the Companies Act 1985. The2006 statutory accounts will be completed shortly and delivered to the Registrarof Companies following the Company's Annual General Meeting. 14. Preliminary Announcement A copy of this Preliminary Announcement is available on request to allShareholders by post from The Company Secretary, Johnson Service Group PLC,Johnson House, Abbots Park, Monks Way, Preston Brook, Cheshire WA7 3GH. TheAnnouncement can also be accessed on the Internet at www.Johnsonplc.com. The Annual Report will be posted to Shareholders on 5th April 2007. 15. Approval The Preliminary Announcement was approved by the Board of Directors on 23rdMarch 2007. 16. Final Dividend The final dividend is subject to confirmation at the Annual General Meetingwhich will be held on Wednesday 10th May 2007 at The Park Royal Hotel, StrettonRoad, Stretton, Warrington, Cheshire WA4 4NS. Transfers to be taken intoaccount for the proposed final dividend must be lodged at the company's transferoffice, Capita Registrars, Northern House, Woodsome Park, Fenay Bridge,Huddersfield, West Yorkshire HD8 0LA by midday on Friday 8th June 2007, theexpected record date. The ex dividend date will be Wednesday 6th June 2007 andthe proposed final dividend will be paid on Monday 9th July 2007. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Johnson Service