Final Results

Johnson Service Group PLC 29 April 2008 29 April 2008 Johnson Service Group PLC Statement for the Financial Year to 31 December 2007 Johnson Service Group PLC, the textile services and facilities management Group announces its preliminary results for the financial year ending 31 December 2007. Overview â€¢ Difficult year for the Group â€¢ John Talbot appointed interim Chief Executive Officer in December 2007 â€¢ Resilient and cash generative businesses with strong market positions and growth potential â€¢ Successful disposal of the Corporatewear division for a cash consideration of Â£82.5 million reduces debt â€¢ New banking facilities secured to December 2010, providing stable financial platform to move forward Financial Summary 2007 2006 Revenue Â£406m Â£411m Revenue (excluding costs recharged to customers) Â£365m Â£361m Operating Loss/Profit Â£(38.1)m Â£23.7m Adjusted Operating Profit* Â£30.1m Â£34.9m (Loss)/Profit Before Tax Â£(52.4)m Â£14.5m Adjusted Profit Before Tax** Â£18.5m Â£25.7m Final Dividend - 15.0p * Before amortisation and impairment of intangibles (excluding software amortisation) and exceptional items ** Before tax refers to adjusted operating profit less finance costs excluding exceptional finance costs in relation to bank fees Simon Sherrard, Chairman of Johnson Service Group, commented: '2007 has been a very difficult year for the Group and during the latter part of the year we were focused on renegotiating terms with our banks and reviewing the future strategy. The main businesses continued to trade well in an increasingly difficult economic situation despite the Group's debt position. 'The disposal of the Corporatewear division completed on 28 April 2008 and the resultant reduction in debt, together with the agreement of medium term bank facilities, mark an important initial step in restoring financial stability. 'Our three continuing businesses - Textile Rental, Drycleaning and Facilities Management - have strong market positions and are an excellent base on which to build the Group's rehabilitation as a leading services company.' Enquiries: Johnson Service Group PLC Hudson Sandler John Talbot, interim Chief Executive Officer Michael Sandler Yvonne Monaghan, Finance Director Sandrine Gallien Tel: 020 7796 4133 (on the day) Fran Read Tel: 020 7290 0390 (thereafter) Telephone: 020 7796 4133 www.johnsonservicegroup.co.uk Chairman's Statement Overview 2007 has been a very difficult year for the Group and during the latter part of the year we were focused on renegotiating terms with our banks and reviewing the future strategy. The main businesses continued to trade well in an increasingly difficult economic situation despite the Group's debt position. On 11 April 2008 we announced the proposed disposal of the Corporatewear division, which was subsequently approved by Shareholders and completed on 28 April 2008 for a cash consideration of Â£82.5 million. At the same time, we announced the details of new bank facilities which provide funding for the Group to December 2010. The Group continues to focus on providing services to both individual consumers and businesses and has a strong market position in managed property services and market leading positions in textile rental and drycleaning. Our strategy is to maintain and develop these businesses. Group Results Total continuing revenue for the year reduced to Â£406.1 million (2006: Â£410.9 million), while revenue, excluding costs recharged to customers, increased to Â£365 million (2006: Â£360.6 million). Continuing adjusted operating profit was lower at Â£30.1 million (2006: Â£34.9 million). Adjusted operating profit throughout this statement refers to operating profit before amortisation and impairment of intangibles (excluding software amortisation) and exceptional items. Adjusted profit before tax refers to adjusted operating profit less finance costs, excluding exceptional finance costs in relation to bank fees. Amortisation and impairment of intangibles (excluding software amortisation) of Â£27.2 million (2006: Â£5.8 million) includes Â£21.1 million in respect of the impairment of goodwill. This largely comprised Â£13.2 million reflecting the disposals of the Corporatewear division in March and April 2008 and Â£6.5 million in respect of the Facilities Management division. Net exceptional costs for the year of Â£41.0 million (2006: Â£5.4 million) included restructuring costs of Â£16.7 million (2006: Â£8.1 million), Â£3.6 million for the accelerated depreciation of linen stocks at Stalbridge and the write down of the ERP system of Â£16.7 million. The ERP system will continue to be utilised only within the Stalbridge business up to the end of 2008 and the net book value of the software and hardware has consequently been written down to reflect this restricted use. In addition, professional fees of Â£2.4 million were incurred in connection with the bank debt restructuring process, with further costs to be incurred in 2008. Net finance costs in 2007 were Â£14.3 million comprising exceptional finance costs in relation to bank fees of Â£2.7 million and Â£11.6 million of other finance costs (2006: Â£9.2 million). The increase in other finance costs reflects higher average borrowings and interest rates during the period. Adjusted pre-tax profit on a continuing basis, excluding amortisation and impairment of intangibles (excluding software amortisation) and exceptional items and exceptional finance costs, was Â£18.5 million (2006: Â£25.7 million). After the exceptional costs and amortisation and impairment of intangibles (excluding software amortisation) noted above, the pre-tax loss was Â£52.4 million (2006: profit of Â£14.5 million). Adjusted fully diluted earnings per share from continuing operations were 19.7p (2006: 32.6p) while continuing earnings per share including exceptional items and amortisation and impairment of intangibles (excluding software amortisation) were a loss of 75.8p (2006: profit of 22.6p). The results for the Corporatewear division, which has been disposed of subsequent to the year end, are included within the figures reported. Finances Total net debt at the end of the year was Â£168.5 million (December 2006: Â£142.5 million) following an increase in working capital during the year of Â£11.1 million and the payment of the final 2006 dividend of Â£8.9 million. On completion of the Corporatewear disposal, Â£65.0 million is being repaid to the banks and our facilities reduced by a like amount. A favourable movement in market assumptions together with additional cash contributions of Â£3.5 million during the period has further reduced the recorded net deficit after tax for all post retirement benefit obligations from Â£20.6 million at December 2006 to Â£10.8 million at December 2007. This will be assisted further by the contribution of Â£2.1 million from the Corporatewear disposal. Dividend No dividend is being declared for 2007. Board Changes In December, we announced that John Talbot had been appointed as interim Chief Executive Officer and had joined the Board following the departure of Charles Skinner, who had joined as Chief Executive in April 2007. John has over 25 years of restructuring experience. He was formerly Global Head of Arthur Andersen's Corporate Finance and Corporate Recovery practice until 1999 and is currently a Senior Partner at Kroll Talbot Hughes Limited, a leading European turnaround and restructuring firm. The Board is confident that his experience will prove invaluable in the development and implementation of a recovery plan for the Group. During April a further arrangement has been entered into under which John will remain with the Group until at least the end of September 2008 and discussions are underway regarding a more permanent arrangement. Yvonne Monaghan, previously the Group Financial Controller, joined the Board as Finance Director at the end of August 2007. Simon Moate resigned from the Board in July 2007 and Jim Wilkinson resigned from his role as Finance Director in August 2007. Admission to AIM As explained in the Circular issued to Shareholders on 11 April 2008, your Board is recommending that the Group's Stock Exchange listing be transferred to AIM. The Board anticipates that recurring savings will be made by this proposed move, which will be voted on by Shareholders at an Extraordinary General Meeting on 8 May 2008. People and Culture I would like to put on record my thanks for the considerable effort by all of our employees at every level during the recent difficult circumstances. Outlook Our three continuing businesses have strong market positions and are an excellent base on which to build the Group's rehabilitation as a leading services company. The disposal of the Corporatewear division and the resultant reduction in debt, together with the agreement of medium term bank facilities, mark an important initial step in restoring financial stability. The terms of the banking facilities incentivise the raising of equity and the Board will be considering this in consultation with Shareholders. Our aim is to create a sound financial structure which will enable shareholders to benefit from our market leading portfolio of businesses. Simon Sherrard Chairman Chief Executive Officer's Review Overview In my position as interim Chief Executive Officer, my remit is to implement a recovery plan for the Group. Our main businesses continue to perform well and now have the ability to take advantage of market opportunities, despite having suffered a period of uncertainty during the renegotiation of bank facilities over the last six months. Since joining the Group at the end of 2007, I have visited all of the operations and have been impressed with the quality of each of the businesses and in particular by the operational management of each division. During the past few months I have been working with the Executive Management team and our advisers to assess the opportunities available to the Group to reduce the level of debt. The announcement made on 11 April 2008 regarding the sale of the Corporatewear division, which has now been completed, and the new banking facilities agreed with our banks, will allow us to concentrate on maximising the potential of our three remaining divisions; Textile Rental, Drycleaning and Facilities Management. Textile Rental The Division, which comprises Johnsons Apparelmaster and Stalbridge Linen Services has increased revenue and adjusted operating profit compared to 2006. The benefit of the Texicare acquisition in January 2007 together with some organic growth at Apparelmaster has resulted in increased revenue of 3.0% to Â£129.0 million and this, together with improvements at Stalbridge, has increased adjusted operating profit by 19.8% to Â£10.9 million. The adjusted operating margin increased from 7.3% in 2006 to 8.4% in 2007. This was achieved despite increased energy and fuel costs and the continuing restructuring programme at our Stalbridge business. Johnsons Apparelmaster Johnsons Apparelmaster, the market-leading workwear laundering and rental business, has achieved a further year of organic growth with a 2.8% increase in its core recurring revenue despite difficult trading conditions. Revenue increased by 7.3% to Â£92.6 million and adjusted operating profit by 1.7% to Â£11.9 million. The business performed well against its peer group and we saw the withdrawal of several market participants. This has enabled us to increase our share of the workwear market to approximately 33%. Texicare was acquired by Johnsons Apparelmaster in January 2007 for Â£3 million, providing a base in the North of Lancashire from which to service customers in Northern England. Texicare added a further 120 employees and almost Â£4 million of turnover to the Group along with two processing facilities, food and engineering, which have the ability to process approximately 60,000 pieces per week. The successful integration of Texicare represents a model for future consolidation of this market. Our annual independent Customer Satisfaction Survey reported that the overall level of customer satisfaction had increased for the fourth consecutive year to 81.3% in 2007 from 80% in 2006 and our satisfaction level with new customers remains at an even higher level of 84.7%. These successes are due to our commitment to investing in the future. We listen to customers, train and develop our employees and utilise technology to increase efficiency. During the year we have continued to invest in plant infrastructure to drive efficiencies in the business. We opened a 'Gold Standard' food plant in Leeds at a cost of Â£0.8 million in order to enhance service to large national food production customers, following on from the successful commissioning of a food plant in Basingstoke towards the end of 2006. We also moved our Head Office into a new facility in Fulwood, near Preston. In anticipation of further increases in energy costs, we are implementing a renewed energy efficiency programme. There will be some benefit from lower garment prices following the signing of a new supply contract with the purchaser of the former CCM garment business, which was sold by the Group in March 2008. We plan to further grow our market share by developing our Customer Relationship Management programme, enhancing our employee training programmes, further developing our IT systems and, in the medium term, identifying suitable acquisition opportunities. We also intend to increase our return on investment by driving efficiencies throughout the business. Despite increased energy costs, we believe that the outlook for the business is positive and it will continue its strong cash generation. Stalbridge Linen Services Stalbridge Linen Services supplies linen to the catering and corporate hospitality markets, a key service within Textile Rental. Stalbridge commenced a strategic realignment of its business at the beginning of 2007 by disposing of its high volume, low margin hotel linen business in order to return to its core strength as the major supplier to the premium markets of chefswear and restaurant and catering linen. As part of this process, its new high volume facility at Hinckley has, at the start of 2008, been transferred to replace an outdated facility and meet demand at Johnsons Apparelmaster. As a consequence revenue fell by 11.6% to Â£36.4 million and adjusted operating loss reduced by 49% to Â£2.0 million. Stalbridge is working more closely with Johnsons Apparelmaster under a common divisional head and our logistics team has re-planned the Stalbridge sites from which customers are serviced to improve efficiencies and the carbon footprint of the business further. We are investigating further opportunities to benefit from operational synergies which are likely to include common IT systems. Whilst the full restructuring programme has yet to be completed, the business has successfully reduced its levels of loss in the second half of 2007 compared to the first six months, and we are confident about the outlook for Stalbridge. Drycleaning Our retail drycleaning division includes Johnson Cleaners and Jeeves of Belgravia together with Alex Reid, which supplies consumables to drycleaning and related businesses. Johnson Cleaners is recognised as the UK's number one drycleaner by volume and value. It is a trusted national brand that cleans over 15 million garments per annum. Total revenue of the division decreased by 4.6% to Â£94.6 million from Â£99.2 million in 2006 and adjusted operating profit decreased by 34.1% to Â£6.0 million from Â£9.1 million in 2006, largely due to the performance of Alex Reid. In addition, the increase in rent of Â£0.9 million paid on our drycleaning units following the sale and leaseback of property undertaken in June 2006 was a contributory factor. Johnson Cleaners and Jeeves of Belgravia Johnson Cleaners and Jeeves of Belgravia revenue decreased by 1.2% on a like-for-like basis to Â£82.8 million (2006: Â£86.5 million) and adjusted operating profit by 2.9% to Â£6.6 million. Management continue to address the impact of the decline in retail spending and the smoking ban by tight cost control, value-based promotional activity to drive volume and by developing a broader service offering. We are also continuing our drive to reposition the store portfolio to convenient locations and to develop strategic partnerships with supermarkets. We opened four new branches within Sainsbury and Waitrose stores and three Drive-ins at Orpington, Shepherds Hill (Reading) and Radcliffe (Manchester). We closed 17 branches in locations that were not deemed suitable to support ongoing business. We have continued to grow our Priority Club membership, increasing our loyal customer base by 50,000 members in the year to some 525,000. Membership of the Priority Club requires the customer to pay an annual fee which in return offers them additional benefits and discounts at Johnson Cleaners It is a number of years now since the 'Johnsonisation' programme was completed and a large percentage of the store portfolio is in need of refurbishment. 2007 saw us begin the 'Evolution' programme with eight trial stores testing new fascias, point of sale and instore concepts. The trials provided the evidence required to commence a roll out and over the next three years it is planned that 70 stores per year will be 'Evolutionised'. We have broadened our specialist service offering with promotions for wedding dresses, curtains, duvets and leather cleaning. Johnson Fabric Restoration Services (JFRS), our start up business, launched a new service offering first aid for textiles and leather. JFRS is the first national fabric restoration service to work with insurers and specialist restoration contractors to provide a process that restores fabrics affected by fire and flood. In recent years, there have been comparatively low barriers to entry to the drycleaning market, but this is changing due to more stringent environmental regulations such as the Solvent Emissions Directive. We believe we are ideally placed to benefit from these changes in a market of which we have a share of approximately 25%. Johnson Service Group owns exclusive UK rights to the GreenEarth(R) technology which gives significant process and environmental advantages over traditional drycleaning methods, and we have already converted almost half of our stores to this technology. Our scale means that we have far greater resources and expertise than our competitors to implement and build on these changes. We are developing a Carbon Policy in conjunction with the Carbon Trust, where we will not only measure our footprint, but take measures to reduce it, therefore improving our 'Green' credentials. Jeeves of Belgravia, our respected luxury brand and holder of the Royal Warrant for H.R.H. the Prince of Wales, offers premium quality services to customers including haute-couture houses and a wide range of individuals seeking a bespoke service. Jeeves has continued to perform well, benefiting from a clear focus on quality, people and technology. Our ongoing strategy for our Drycleaning business is to reposition our store portfolio over the coming years so that our locations are all sited to provide optimum convenience for our customers. We continue to work closely with our supermarket partners and have a number of Sainsbury units planned to open in 2008, alongside new Drive-in locations which are already identified. This strategy will reposition the store portfolio in key locations, whilst the core estate extends its range of services and works towards driving volume through a value proposition. Evolution will enhance the brand image, and an accelerated rollout of GreenEarth (R) will be a key differentiator in the drycleaning market place. Alex Reid Alex Reid, our specialist drycleaning supplies business, traded disappointingly in what has been a difficult year for the drycleaning industry. However, despite a reduction in the sales of consumables, we have experienced a growth in the sales of Firbimatic GreenEarth(R) drycleaning machines as operators adopt this new technology. Revenue decreased to Â£11.8 million from Â£12.7 million in 2006 with an adjusted operating loss of Â£0.6 million from Â£1.3 million profit in 2006. The business is currently profitable and we are exploring opportunities to improve the trading performance. Facilities Management The Facilities Management division includes Johnson Facilities Management and Workplace Engineering. Revenue for the division was 9.9% lower at Â£93.2 million (2006: Â£103.4 million) whilst revenue, excluding costs recharged to customers, was 1.9% lower at Â£52.1 million (2006: Â£53.1 million). Adjusted operating profit reduced by 21.3% to Â£5.9 million (2006: Â£7.5 million). Johnson Facilities Management Johnson Facilities Management (JFM) completed 2007 with a strong second half trading performance and achieved additional fee income from the previously anticipated loss of a major contract that is now being undertaken in-house by the customer. Revenue excluding costs recharged to customers increased to Â£40.5 million (Â£39.0 million in 2006), while total revenue decreased to Â£81.6 million from Â£89.3 million in 2006. Adjusted operating profit decreased to Â£5.6 million in 2007 from Â£6.0 million in 2006. This was a commendable performance at a time of considerable upheaval caused by the integration of the two business components. The business was formed by the merger of SGP, which was acquired in 2005 and specialises in the provision of property management services to the financial, retail and leisure sectors, with Johnson Workplace Management, which is focused primarily on the commercial office market in both the public and private sectors. SGP has grown rapidly and profitably since its formation in 2000 and it continues to attract new customers at an impressive rate. Its customer-facing strengths are well complemented by the sound operating skills of Workplace Management. The integration of these businesses has been completed during 2007. These businesses provide essential services to major British corporations and institutions. They have strong positions in markets with high barriers to entry, excellent earnings visibility and represent an exciting platform for growth. They provide a unique service offering and strength in the retail market, of which we have a 22% share of our chosen market. JFM has already won and mobilised two small contracts during 2008 and is engaged in on-going discussions with a number of blue chip prospective customers. Our strategy is to continue to build our market leading property service business by focusing on our core capabilities of IT, procurement and management to make significant improvements in underlying organic growth and profits. This will be achieved by targeting growth into higher margin service lines and by becoming the dominant player in the provision of retail maintenance, retail rating and service charge activities. For 2008, the service charge and agency businesses have been considerably strengthened with leading industry expertise brought into JFM, and early indications are for a growth year in this business activity. Workplace Engineering Workplace Engineering, which provides electrical, engineering and fit-out services, had revenue of Â£11.6 million (2006: Â£14.1 million) and adjusted operating profit of Â£0.5 million (2006: Â£1.3 million). The business was impacted by the loss of a major Facilities Management contract referred to above but its management has succeeded in refocusing the business and winning new contracts. Corporatewear The sale of the Corporatewear division, the leading UK supplier of clothing for people at work, was completed on 28 April 2008 for cash consideration on completion of Â£82.5 million. The Corporatewear division had also historically included CCM which supplied workwear garments to the rental business of Johnsons Apparelmaster and to third party customers. One of CCM's major external contracts was lost towards the end of 2007 and the balance of this workwear operation was reorganised and then sold. The sale of CCM was announced and completed in March 2008, for an initial cash consideration of Â£2.6 million. In 2007, the Division saw increased revenue and adjusted operating profit compared to 2006. Strong sales in the second half of the year resulted in an increase in revenue of 7.5% to Â£89.3 million and an increase in adjusted operating profit by 4.9% to Â£12.9 million. This included a contribution of Â£2.2 million from CCM. During 2007 the integration plan for the support functions of the division continued. Design, technical and sourcing were consolidated centrally whilst maintaining the individual market positions of our six business brands. Wessex Textiles, specialising in ambulance and paramedic clothing, was integrated into Dimensions Corporatewear with significant cost savings. During the year, the growth of the Division was accelerated by the winning of the UK's largest ever outsourced Corporate Clothing contract, worth approximately Â£8 million per annum. The Future I see the agreement of bank facilities and the reduction in our borrowing as being key steps in the rehabilitation of the Group. Our businesses are strong and well managed and our focus will be on incentivising and motivating management, allowing them to focus on building our businesses without the distractions that the problems of the last 12 months have caused. We expect to produce a satisfactory result in 2008. John Talbot Chief Executive Officer JOHNSON SERVICE GROUP PLC CONSOLIDATED INCOME STATEMENT Year ended Year ended 31 December 31 December 2007 2006 Note Â£m Â£m 2 REVENUE FROM CONTINUING OPERATIONS 406.1 410.9 Costs recharged to customers (41.1) (50.3) 2 Revenue excluding costs recharged to customers 365.0 360.6 2 OPERATING (LOSS) / PROFIT (38.1) 23.7 2 OPERATING PROFIT BEFORE INTANGIBLES AMORTISATION AND IMPAIRMENT 30.1 34.9 AND EXCEPTIONAL ITEMS Amortisation and impairment of intangible assets (excluding software (27.2) (5.8) amortisation) 3 Exceptional items - Restructuring and other costs (43.1) (20.4) - Profit on disposal of property 2.1 15.0 2 OPERATING (LOSS) / PROFIT (38.1) 23.7 5 Finance costs - Ordinary finance costs (12.7) (10.0) - Exceptional finance costs (2.7) - 5 Finance income 1.1 0.8 (LOSS) / PROFIT BEFORE TAXATION (52.4) 14.5 6 Taxation 7.5 (1.1) (LOSS) / PROFIT FOR THE YEAR FROM CONTINUING OPERATIONS (44.9) 13.4 DISCONTINUED OPERATIONS: LOSS FOR THE YEAR FROM DISCONTINUED OPERATIONS - (10.9) (LOSS) / PROFIT FOR THE YEAR (44.9) 2.5 8 EARNINGS PER SHARE * Basic earnings per Share From continuing operations (75.8p) 22.8p From discontinued operations - (18.6p) From continuing and discontinued operations (75.8p) 4.2p Fully diluted earnings per Share From continuing operations (75.8p) 22.6p From discontinued operations - (18.4p) From continuing and discontinued operations (75.8p) 4.2p 7 ORDINARY DIVIDENDS PAID AND PROPOSED Interim dividend proposed and paid - 4.6p Final dividend proposed and paid - 15.0p * Earnings per share before intangibles amortisation and impairment (excluding software amortisation) and exceptional items are shown in note 8. CONSOLIDATED STATEMENT OF RECOGNISED INCOME AND EXPENSE Year ended Year ended 31 December 31 December 2007 2006 Â£m Â£m 9 Actuarial gain on defined benefit pension plans 10.4 14.7 Taxation in respect of actuarial gain (3.1) (4.4) Net movement on reserves in respect of defined benefit actuarial gains and losses 7.3 10.3 Cash flow hedges (net of taxation)-fair value (losses) / gains (0.6) 0.1 -transfers to inventory 0.3 0.3 -transfers to interest (0.2) (0.1) NET INCOME RECOGNISED DIRECTLY IN EQUITY 6.8 10.6 (Loss) / profit for the year (44.9) 2.5 TOTAL RECOGNISED (EXPENSE) / INCOME FOR THE YEAR (38.1) 13.1 CONSOLIDATED BALANCE SHEET as at as at 31 December 31 December 2007 2006 Note Â£m Â£m ASSETS NON-CURRENT ASSETS Goodwill 117.7 140.0 Intangible assets 32.9 51.9 Property, plant and equipment 48.4 60.8 Textile rental items 23.1 27.6 Deferred income tax assets 13.8 13.4 235.9 293.7 CURRENT ASSETS Inventories 30.5 29.5 Trade and other receivables 69.0 71.3 Current income tax assets - 0.7 Derivative financial assets 0.6 0.6 Cash and cash equivalents 16.3 11.3 116.4 113.4 LIABILITIES CURRENT LIABILITIES Trade and other payables 27.7 29.4 Other creditors and accruals 49.5 69.0 Current income tax liabilities 0.3 - Borrowings 107.8 1.1 Derivative financial liabilities 0.8 0.4 Provisions 7.1 8.5 193.2 108.4 NET CURRENT (LIABILITIES) / ASSETS (76.8) 5.0 NON-CURRENT LIABILITIES Borrowings 77.0 152.7 9 Retirement benefit obligations 15.8 30.7 Deferred income tax liabilities 7.9 12.6 Provisions 9.8 8.2 Derivative financial liabilities 0.3 - Other non-current liabilities 1.5 1.9 112.3 206.1 NET ASSETS 46.8 92.6 EQUITY CAPITAL AND RESERVES ATTRIBUTABLE TO THE COMPANY'S EQUITY HOLDERS Called up share capital 5.9 5.9 Share premium 13.7 12.7 Other reserves 1.9 2.4 Retained earnings 25.3 71.6 TOTAL EQUITY 46.8 92.6 CONSOLIDATED CASH FLOW STATEMENT Year ended Year ended 31 December 31 December 2007 2006 Note Â£m Â£m CASH FLOWS FROM OPERATING ACTIVITIES (Loss) / profit for the year (44.9) 2.5 Adjustments for: Income tax expense - continuing operations (7.5) 1.1 - discontinued operations - (3.2) Finance income and expense 14.3 9.2 Depreciation 28.6 28.6 Amortisation of intangible assets and impairment of goodwill 28.7 7.3 Impairment of intangible assets (capitalised software) 17.0 3.9 (Increase) / decrease in inventories (1.0) 0.7 Decrease / (increase) in trade and other receivables 0.8 (3.9) (Decrease) / increase in trade and other payables (10.9) 1.4 Loss / (profit) on sale of property, plant and equipment 6.2 (14.5) Loss on disposal of intangible assets 0.7 - Write off of textile rental items 3.6 - Loss on closure of subsidiaries - 11.7 9 Additional contribution to defined benefit pension schemes (3.5) (4.8) Other non-cash movements (0.4) 3.5 Cash generated from operations 31.7 43.5 Interest paid (15.0) (9.5) Taxation received / (paid) 0.5 (4.3) Net cash flows generated from operating activities 17.2 29.7 CASH FLOWS FROM INVESTING ACTIVITIES 10 Acquisition of subsidiaries (net of cash acquired) (7.1) (4.4) Net proceeds from sale of investments in other companies - 1.4 Purchase of property, plant and equipment (12.5) (14.9) Proceeds from sale of property, plant and equipment 5.7 24.8 Purchase of intangible assets (6.3) (11.8) Purchase of textile rental items (19.4) (24.1) Proceeds from sale of textile rental items 3.6 3.9 Interest received 1.1 0.8 Net cash used in investing activities (34.9) (24.3) CASH FLOWS FROM FINANCING ACTIVITIES Net proceeds from borrowings 63.0 86.0 Repayments of borrowings (31.0) (76.0) Capital element of finance leases (1.4) (1.1) Net proceeds from issue of ordinary shares 1.0 0.8 Net proceeds from sale of own shares in relation to employee share schemes - 0.2 Dividends paid to company Shareholders (8.9) (11.5) Net cash generated from / (used in) financing activities 22.7 (1.6) 11 Net increase in cash and cash equivalents 5.0 3.8 Cash and cash equivalents at beginning of period 11.3 7.5 12 Cash and cash equivalents at end of period 16.3 11.3 NOTES TO THE PRELIMINARY ANNOUNCEMENT 1. Basis of Preparation The financial information contained within this report has been prepared in accordance with International Financial Reporting Standards (IFRS) as endorsed by the European Union issued by the International Accounting Standards Board (IASB), with the Interpretations issued by the International Financial Reporting Interpretations Committee (IFRIC) of the IASB that are effective as of the balance sheet date and with those parts of the Companies Act 1985 applicable to companies reporting under IFRS. Other than as outlined below, the financial information has been prepared using accounting policies consistent with those set out in the 2006 Annual Report: (a) Standards, amendments and interpretations effective in 2007 IFRS 7, 'Financial instruments: Disclosures', and the complementary amendment to IAS 1, 'Presentation of financial statements - Capital disclosures', introduces new disclosures relating to financial instruments and does not have any impact on the classification and valuation of the Group's financial instruments, or the disclosures relating to taxation and trade and other payables. IFRIC 8, 'Scope of IFRS 2', requires consideration of transactions involving the issuance of equity instruments, where the identifiable consideration received is less than the fair value of the equity instruments issued in order to establish whether or not they fall within the scope of IFRS 2. This standard does not have any impact on the Group's financial statements. IFRIC 10, 'Interim financial reporting and impairment', prohibits the impairment losses recognised in an interim period on goodwill and investments in equity instruments and in financial assets carried at cost to be reversed at a subsequent balance sheet date. This standard does not have any impact on the Group's financial statements. (b) Interpretation early adopted by the Group IFRIC 11, 'IFRS 2 - Group and treasury share transactions', was early adopted in 2007. IFRIC 11 provides guidance on whether share-based transactions involving treasury shares or involving Group entities (for example, options over a parent's shares) should be accounted for as equity settled or cash-settled share-based payment transactions in the stand-alone accounts of the parent and Group companies. This interpretation does not have an impact on the Group's financial statements. 2. Segment Information - Analysis of Revenue, Operating Profit Before Exceptional Items and Intangibles Amortisation and Impairment (excluding software 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 at 31 December 2007. Inter-segment pricing is determined on an arm's length basis. Geographical segments Revenue originates wholly within the United Kingdom and as a result, no geographical segments are presented within this announcement. Business segments The Group comprises the following main business segments: â€¢ Textile rental services - market leader in the UK in the field of workwear rental and laundering, and in linen for the premium hotel, catering and corporate hospitality markets; â€¢ Corporatewear - offering a comprehensive range of workwear and workplace clothing; â€¢ Drycleaning - the nation's largest drycleaner, with over 530 stores nationwide offering a range of drycleaning, laundry and ironing services, carpet cleaning, upholstery cleaning, wedding dress cleaning and suede & leather cleaning and the supply of drycleaning consumables; and â€¢ Facilities management - delivering building, facilities and property management services to many leading public, commercial and retail organisations throughout the UK. Year ended 31 December 2007 Textile Corporatewear Drycleaning Facilities Unallocated Total Rental Management Â£m Â£m Â£m Â£m Â£m Â£m REVENUE Revenue 129.0 100.1 94.6 94.4 - 418.1 Inter-segment revenue - (10.8) - (1.2) - (12.0) 129.0 89.3 94.6 93.2 - 406.1 REVENUE EXCLUDING COSTS RECHARGED TO CUSTOMERS Revenue 129.0 100.1 94.6 53.3 - 377.0 Inter-segment revenue - (10.8) - (1.2) - (12.0) 129.0 89.3 94.6 52.1 - 365.0 RESULT Operating profit before intangibles 10.9 12.9 6.0 5.9 (5.6) 30.1 amortisation and impairment (excluding software amortisation) and exceptional items Amortisation and impairment of (1.3) (15.9) (1.4) (8.6) - (27.2) intangible assets (excluding software amortisation) Exceptional items - Restructuring and other costs (13.1) (1.1) (0.1) (1.5) (27.3) (43.1) - Profit on disposal of property 0.9 - 1.2 - - 2.1 Operating (loss) / profit (2.6) (4.1) 5.7 (4.2) (32.9) (38.1) Finance costs - Exceptional finance costs (2.7) - Ordinary finance costs (12.7) Finance income 1.1 Profit before taxation (52.4) Taxation 7.5 Loss for the year (44.9) Year ended 31 December 2006 Textile Corporatewear Drycleaning Facilities Unallocated Total Rental Management Â£m Â£m Â£m Â£m Â£m Â£m REVENUE Revenue 125.2 95.4 99.2 104.6 - 424.4 Inter-segment revenue - (12.3) - (1.2) - (13.5) Revenue - Continuing 125.2 83.1 99.2 103.4 - 410.9 Revenue - Discontinued 8.0 - - - - 8.0 133.2 83.1 99.2 103.4 - 418.9 REVENUE EXCLUDING COSTS RECHARGED TO CUSTOMERS Revenue 125.2 95.4 99.2 54.3 - 374.1 Inter-segment revenue - (12.3) - (1.2) - (13.5) Revenue excluding costs recharged 125.2 83.1 99.2 53.1 - 360.6 to customers - Continuing Revenue - Discontinued 8.0 - - - - 8.0 133.2 83.1 99.2 53.1 - 368.6 RESULT Operating profit before intangibles 9.1 12.3 9.1 7.5 (3.1) 34.9 amortisation (excluding software amortisation) and exceptional items Amortisation of intangible assets (1.0) (2.6) (0.2) (2.0) - (5.8) (excluding software amortisation) 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 0.8 Profit before taxation 14.5 Taxation (1.1) Profit for the period - Continuing 13.4 Discontinued operations - Textile (10.9) rental services Profit for the year 2.5 Revenue from continuing operations originates in the United Kingdom. There is no material difference between revenue by origin and by destination. Facilities management revenue comprises fees receivable and costs recharged to customers where the relationship with the supplier of services is that of principal. The element of revenue which comprises supplier costs recharged to customers has been shown separately on the income statement to aid interpretation of the business. 3. Exceptional Items Year ended Year ended 31 December 2007 31 December 2006 Â£m Â£m Restructuring costs - Textile Rental Services (9.5) (0.8) - Corporatewear (1.1) (1.7) - Drycleaning (0.1) (2.9) - Facilities Management (1.5) (1.1) - Group (4.5) (1.6) - Total (16.7) (8.1) Professional fees associated with bank restructuring process (2.4) - Onerous lease and environmental costs (3.7) (1.7) Write-off of rental stock (3.6) - Write-off of ERP system (software and hardware) (16.7) (3.9) Drycleaning - costs relating to the aborted disposal - (2.6) Uninsured losses - (4.1) (43.1) (20.4) Property disposals - Sale and leaseback - 13.0 - Others 2.1 2.0 - Total 2.1 15.0 Total exceptional items (41.0) (5.4) Restructuring costs within the Textile Rental Services division largely relate to the write-off of fixed assets (Â£6.8 million) associated with the Hinckley processing facility, originally intended for use by Stalbridge Linen Services that will not be utilised going forward. The site is currently being modified and will be occupied by Johnsons Apparelmaster from the end of 2008 onwards, saving the significant investment which would have been required for a new Johnsons Apparelmaster facility. Other costs within the division relate to redundancies and the further restructuring of the division. Restructuring costs within the Corporatewear and Facilities Management divisions are in respect of the integration of the acquisitions made in the previous three years. Group restructuring costs relate to the termination costs of two Executive Directors and the redundancy of other Group staff. Other than redundancy costs, restructuring costs include the decentralisation of the Group IT department and the write-off of associated IT assets. Professional fees associated with the bank restructuring process include the cost of an Independent Business Review, legal fees and other advisory fees. Onerous lease and environmental costs represent a reassessment of expected future costs arising from significant changes in circumstances on specific properties. The write-off of rental stock relates to accelerated depreciation in respect of non-recoverable linen at Stalbridge Linen Services. The ERP system will only be utilised in Stalbridge Linen Services in 2008 and the net book value of the software and hardware has been written-down by Â£16.3 million and Â£0.4 million respectively to reflect this restricted use. Stalbridge Linen Services will move onto a new accounting system during 2008 and therefore the remaining net book value will be amortised over the next twelve months. Property disposals relate to the sale of four surplus Drycleaning properties. In addition an overage provision was received in respect of a 2005 freehold property disposal. 4. Adjusted Profit Before and After Taxation The reconciliation of profit before taxation from continuing operations and adjusted profit before taxation from continuing operations is as follows: Year ended Year ended 31 December 31 December 2007 2006 Â£m Â£m (Loss) / profit before taxation (52.4) 14.5 Intangibles amortisation and impairment (excluding software amortisation) 27.2 5.8 Restructuring and other costs 43.1 20.4 Profit on disposal of property (2.1) (15.0) Exceptional finance costs in respect of bank fees 2.7 - Adjusted profit before taxation 18.5 25.7 Taxation (6.8) (6.3) Adjusted profit attributable to continuing operations 11.7 19.4 5. Finance Costs and Income Year ended Year ended 31 December 2007 31 December 2006 Â£m Â£m Interest payable on bank loans and overdrafts (12.7) (8.8) Amortisation of bank loan issue cost (0.4) (0.2) Interest payable on obligations under finance leases (0.2) (0.3) (13.3) (9.3) Change in fair value of financial derivatives not qualifying for hedge (0.2) (0.2) accounting Interest payable before notional interest on defined benefit liabilities and (13.5) (9.5) assets Notional interest on defined benefit liabilities and assets: - Interest cost on pension scheme liabilities (9.8) (9.9) - Expected return on pension scheme assets 10.7 9.5 - Interest cost on Private healthcare scheme (0.1) (0.1) (12.7) (10.0) Exceptional finance costs in respect of bank fees (2.7) - Finance Costs (15.4) (10.0) Gain on interest rate swap 0.8 0.6 Other finance income 0.3 0.2 Finance income 1.1 0.8 Net finance expense (14.3) (9.2) 6. Taxation Year ended Year ended 31 December 31 December 2007 2006 Â£m Â£m CURRENT TAX UK corporation tax charge for the year - 5.3 Adjustment in relation to previous years 0.5 (1.5) Current tax charge for the year 0.5 3.8 DEFERRED TAX Origination and reversal of timing differences (8.5) (2.6) Adjustment in relation to previous years (0.1) (0.1) Adjustment in relation to change in taxation rate 0.6 - Deferred tax (credit) / charge for the year (8.0) (2.7) Total (credit) / charge for taxation included in the Income Statement (7.5) 1.1 Taxation on the restructuring and other costs, including exceptional finance costs, in the current year has reduced the charge for taxation by Â£12.9 million (2006: Â£4.4 million). Tax relief on intangibles amortisation and impairment (excluding software amortisation) has reduced the charge for taxation by Â£1.8 million (2006: Â£2.7 million). The tax charge on the property disposals has increased the charge for taxation by Â£0.4 million (2006: Â£1.9 million). A number of changes to the UK Corporation Tax system were announced as part of the March 2007 Budget Statement. Certain of these changes were substantively enacted in the 2007 Finance Act on 26 June 2007. The impact of these changes has been recognised in these financial statements. Certain other changes are expected to be enacted in the 2008 Finance Act. The impact of these changes will be recognised in the period in which the 2008 Finance Act becomes substantively enacted, which is expected to be in the year ending 31 December 2008. Changes to the Industrial Building Allowances regime will result in the reduction of deferred tax liabilities. A reduction of approximately Â£2.0 million is expected to be recognised as a credit to the Income Statement for the year ending 31 December 2008. 7. Dividends Year ended Year ended 31 December 31 December 2006 2007 Ordinary dividends paid and proposed Interim dividend paid - 4.6p Final dividend paid - 15.0p On 9 July 2007 a final dividend of 15.0p in respect of the year ended 31 December 2006 was paid on the Ordinary shares, utilising Â£8.9 million of Shareholders' funds. The Trustee of the ESOP has waived the entitlement to receive dividends on the Ordinary shares held by the Trust. The Directors do not propose the payment of a dividend in respect of the year ended 31 December 2007. 8. Earnings Per Share Year ended Year ended 31 December 2007 31 December 2006 Â£m Â£m Profit for the financial year attributable to Ordinary Shareholders (44.9) 13.4 from continuing operations Loss for the financial year attributable to Ordinary Shareholders - (10.9) from discontinued operations Intangibles amortisation and impairment, excluding software amortisation (net 25.4 3.1 of taxation) Exceptional costs from continuing operations (net of taxation) 29.3 2.9 Exceptional costs from discontinued operations (net of taxation) - 9.2 Exceptional finance costs in respect of bank fees (net of taxation) 1.9 - Adjusted profit attributable to Ordinary Shareholders (Note 4) 11.7 17.7 Weighted average number of Ordinary shares 59,295,914 58,843,450 Potentially dilutive options 56,055 709,375 Fully diluted number of Ordinary shares 59,351,969 59,552,825 Basic earnings per share From continuing operations (75.8p) 22.8p From discontinued operations - (18.6p) From continuing and discontinued operations (75.8p) 4.2p Adjustment for intangibles amortisation and impairment 42.9p 5.2p (excluding software amortisation) (continuing operations) Adjustment for exceptional costs (continuing operations) 49.4p 4.9p Adjustment for exceptional costs (discontinued operations) - 15.8p Adjustment for exceptional finance costs in respect of bank fees 3.2p - Adjusted basic earnings per share from continuing operations 19.7p 32.9p Adjusted basic earnings per share from discontinued operations - (2.8p) Adjusted basic earnings per share from continuing and discontinued operations 19.7p 30.1p Diluted earnings per share From continuing operations (75.8p) 22.6p From discontinued operations - (18.4p) From continuing and discontinued operations (75.8p) 4.2p Adjustment for intangibles amortisation and impairment 42.9p 5.1p (excluding software amortisation) (continuing operations) Adjustment for exceptional costs (continuing operations) 49.4p 4.9p Adjustment for exceptional costs (discontinued operations) - 15.6p Adjustment for exceptional finance costs in respect of bank fees 3.2p - Adjusted diluted earnings per share from continuing operations 19.7p 32.6p Adjusted diluted earnings per share from discontinued operations - (2.8p) Adjusted diluted earnings per share from continuing and discontinued operations 19.7p 29.8p Basic earnings per share is calculated using the weighted average number of shares in issue during the year, excluding those held by the ESOP, based on the profit for the period attributable to Ordinary Shareholders. Adjusted earnings per share figures are given to exclude the effects of intangibles amortisation and impairment (excluding software amortisation) and exceptional items, including exceptional finance costs, all net of taxation, and are considered to show the underlying results of the Group. For diluted earnings per share, the weighted average number of Ordinary shares in issue is adjusted to assume conversion of all potentially dilutive Ordinary shares. The Company has potentially dilutive Ordinary shares arising from share options granted to employees where the exercise price is less than the average market price of the Company's Ordinary shares during the year. Potential Ordinary shares are dilutive at the profit from continuing operations level when their conversion to Ordinary shares would decrease earnings per share or increase loss per share from continuing operations. For the year ending 31st December 2007, potential Ordinary shares are antidilutive, as their inclusion in the diluted earnings per share calculation would reduce the loss from continuing operations, and hence have been excluded. For the year ending 31 December 2006, potential Ordinary shares have been treated as dilutive for the purpose of diluted earnings per share from continuing and discontinued operations, as their inclusion decreases earnings per share from continuing operations. Other than for the issue of warrants to the Company's bankers on the signing of the new bank facilities, there were no events occurring after the balance sheet date that would have changed significantly the number of ordinary shares or potential ordinary shares outstanding at the balance sheet date, if those transactions had occurred before the end of the reporting period. 9. Retirement Benefit Obligations The Group has applied the requirements of IAS 19 Employee Benefits (revised December 2004) to its employee pension schemes and post-retirement healthcare benefits. As part of the Group's objective to reduce its overall pension liability, additional contributions of Â£2.9 million and Â£0.6 million were paid to the Johnson Group Staff Pension Scheme and the WML Final Salary Pension Scheme respectively, during the period to 31 December 2007. Following discussions with the Group's appointed actuary it has been identified that an actuarial gain of Â£10.4 million should be recognised in the year to 31 December 2007. This is as a result of the scheme assets and liabilities performing differently to previous assumptions and changes to the assumptions used in calculating scheme liabilities. The gross retirement benefit liability and associated deferred tax asset thereon, together with the net liability is shown below: Year ended Year ended 31 December 2007 31 December 2006 Â£m Â£m Gross retirement benefit liability (15.8) (30.7) Deferred tax asset thereon 5.0 10.1 Net liability (10.8) (20.6) 10. Acquisitions Acquisitions Consideration paid and net assets acquired The material businesses acquired during the period are shown below. Unless otherwise stated, 100% of either the voting equity instruments or the trade and net assets of each business was acquired. Consideration Net Separately Goodwill identified and costs assets intangible acquired assets Â£m Â£m Â£m Â£m Texicare (acquired 1 January 2007) 3.2 1.6 1.6 - Adjustments to prior period deferred consideration (1.1) - 0.1 (1.2) Total acquisitions in the period 2.1 1.6 1.7 (1.2) Â£m Consideration has been satisfied by: Cash consideration payable 3.1 Professional fees and other costs 0.1 Acquisitions in the period 3.2 Adjustments relating to previous year acquisitions (1.1) 2.1 Net assets at the date of acquisition Net Accounting Fair value Carrying policy adjustments Texicare assets adjustments value at acquired date of acquisition Â£m Â£m Â£m Â£m Tangible fixed assets - property, plant and equipment 0.4 0.1 - 0.5 Tangible fixed assets - rental items 1.2 (0.2) - 1.0 Inventories 0.1 - - 0.1 Trade and other receivables 0.8 - (0.2) 0.6 Cash and cash equivalents 0.1 - - 0.1 Creditors and other liabilities (0.5) - (0.2) (0.7) 2.1 (0.1) (0.4) 1.6 Adjustments in respect of prior years' acquisitions arose due to increased knowledge of assets and liabilities resulting from a longer period of ownership. Analysis of net cash flow in respect of acquisitions Â£m Cash consideration and costs paid 3.2 Deferred consideration paid on acquisitions in prior years 4.0 7.2 Cash acquired (0.1) 7.1 Impact of acquisitions on the consolidated revenue and profit for the period Texicare is a traditional workwear laundry based in Northwest England, with a mixture of industrial and food garment streams. In the year to 31 December 2007, Texicare contributed revenue of Â£3.9 million and operating profit before intangibles amortisation and impairment (excluding software) and exceptional items of Â£0.5 million to the Group consolidated loss for the period. 11. Reconciliation Of Net Cash Inflow To Movement In Net Debt Year ended Year ended 31 December 2007 31 December 2006 Â£m Â£m Increase in cash in year 5.0 3.8 Cash (inflow) on change in debt and lease financing (30.6) (8.9) Change in net debt resulting from cash flows (25.6) (5.1) Amortisation of issue costs of bank loans (0.4) (0.2) Movement in net debt in year (26.0) (5.3) Opening net debt (142.5) (137.2) Closing net debt (168.5) (142.5) 12. Analysis of Net Debt At Cash Flow Other Non-cash At 1 January Â£m Changes 31 December 2007 2007 Â£m Â£m Â£m Cash and cash equivalents 11.3 5.0 - 16.3 Debt due within one year - - (106.8) (106.8) Debt due after more than one year (149.4) (32.0) 106.4 (75.0) Finance leases (4.4) 1.4 - (3.0) (142.5) (25.6) (0.4) (168.5) Non-cash changes represent the effects of amortising issue costs relating to bank loans and the reclassification of debt after more than one year to within one year. 13. Abridged Accounts The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 December 2007 or 31 December 2006 within the meaning of Section 240 of the Companies Act 1985, but is derived from those accounts. Statutory accounts for 2006 have been delivered to the Registrar of Companies, and those for 2007 will be delivered following the Company's Annual General Meeting. The Auditors have reported on those accounts; their report was unqualified and did not contain a statement under s237(2) or (3) of the Companies Act 1985. 14. Preliminary Announcement A copy of this Preliminary Announcement is available on request to all Shareholders by post from The Company Secretary, Johnson Service Group PLC, 4 Harley Street, London W1G 9PB. The Announcement can also be accessed on the Internet at www.Johnsonplc.com. The Annual Report will be posted to Shareholders on or before the 13 May 2008. 15. Approval The Preliminary Announcement was approved by the Board of Directors on 29 April 2008. 16. Events After The Balance Sheet Date On the 19 March 2008 the Group announced the disposal of certain assets including stock, certain supply contracts and associated goodwill relating to the Group's CCM garment sourcing business. The consideration was approximately Â£2.6 million in cash with up to a further Â£0.2 million deferred consideration. On 11 April 2008 the Group announced the following: a) The proposed disposal of the Group's Corporatewear division for an amount of Â£82.5 million (subject to adjustment post completion). The net proceeds, estimated at Â£64.6 million together with an amount of approximately Â£0.4 million from the Company's current resources is being used to repay the bridge bank facility of Â£65.0 million. The disposal was approved by Shareholders at the EGM held on 28 April 2008. b) New bank facilities have been agreed with the Group's existing bank group comprising amortising and non amortising term loans with a final repayment date of 31 December 2010. The bridge facility included within the facilities will be repaid from the disposal proceeds from the sale of Corporatewear. c) On 11 April 2008, the Group issued to its existing lender banks, in connection with the renegotiation of the Group's debt facilities, warrants over 2,957,636 shares, representing approximately 4.7% of the fully diluted share capital of the Group as at that date. The warrants are exercisable from 11 April 2008 until 31 December 2011 at an exercise price of 10 pence per share, which represents the par value of the shares. d) The Group has proposed a transfer of the Company's stock exchange listing from the Official List to AIM and a resolution to approve this is the subject of an EGM on 8 May 2008. This information is provided by RNS The company news service from the London Stock Exchange

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