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Johnson Service Grp. (JSG)

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Monday 02 March, 2020

Johnson Service Grp.

Preliminary Results

RNS Number : 5932E
Johnson Service Group PLC
02 March 2020
 

 

2 March 2020

AIM: JSG

Johnson Service Group PLC

('JSG' or 'the Group')

   

Preliminary Results for the Year Ended 31 December 2019

 

"Strong financial performance from continued organic growth"

 

 

HIGHLIGHTS

 

 

2019

2018

 % Increase

Adjusted results1

 

 

 

Revenue

£350.6m

£321.1m

9.2%

Adjusted operating profit2

£52.8m

£46.0m

14.8%

Adjusted profit before taxation2

£48.2m

£42.5m

13.4%

Adjusted diluted earnings per share2

10.5p

9.3p

12.9%

Dividend

3.5p

3.1p

12.9%

Net debt (pre IFRS 16)

£87.7m

£98.4m

-

Net debt2

£127.7m

£98.4m

-

Statutory results

 

 

 

Operating profit2

£42.7m

£36.6m

16.7%

Profit before taxation2

£38.1m

£33.1m

15.1%

Diluted earnings per share2

8.3p

7.2p

15.3%

 

§ Consistent strong financial performance

- organic growth of 6.5%3 together with benefits of recent acquisitions

- adjusted operating margin increased to 15.1% (2018: 14.3%)

- strong cash generation

 

§ Full year dividend up by 12.9% to 3.5p (2018: 3.1p) reflecting confidence in future prospects

 

§ Significant capital investment during the year to improve productivity and increase processing capacity at a number of sites

 

§ Acquisition of HORECA linen business, Fresh Linen, on 30 November 2019 further expands  JSG's nationwide presence

 

§ New hotel linen site in Leeds on track for Q2 2020

 

Notes

1  Excluding amortisation of intangible assets (excluding software amortisation) and exceptional items.

2  Figures for 2019 include the impact of adopting IFRS 16 (Leases), which increased operating profit and adjusted operating profit by £1.1 million, reduced profit before taxation and adjusted profit before taxation by £0.4 million and increased net debt by £40.0 million.  The Group has applied the modified retrospective approach in adopting IFRS 16 and therefore the comparative numbers for 2018 have not been restated.  Excluding the impact of IFRS 16, adjusted operating profit increased by 12.4% and adjusted profit before taxation increased by 14.4%.

3  Excluding revenue from acquisitions completed in 2019 and the full year benefit of acquisitions completed in 2018.

 

Peter Egan, Chief Executive Officer of Johnson Service Group PLC, the UK's leading textile services provider, commented:

 

"We have continued to deliver strong organic growth complemented by the impact of our recent acquisitions. The combination of these has yielded another solid financial year with impressive growth in Group revenues, operating profit and earnings per share.

 

The Group's trading performance since the year end has been in line with management expectations.

 

We are looking forward to the opening of our new Leeds site which will bring further capacity on stream and are continuing to plan for investment in our other sites, to increase capacity even further. 

 

We anticipate that the Group will deliver organic growth across both divisions, whilst continuing to focus on customer satisfaction and investment to optimise operational efficiencies. This, alongside our proven track record in identifying earnings enhancing acquisitions, gives us confidence for the future success of the Group."

 

 

 

 

 

SELL-SIDE ANALYSTS MEETING

The Company will present to sell-side analysts at 9.30am today at Investec, 30 Gresham Street, London EC2V 7QP.  A copy of the presentation will be available on the Company's website ( www.jsg.com ) following the meeting.

 

 

ENQUIRIES

 

Johnson Service Group PLC( www.jsg.com )

 

 

Peter Egan, CEO

 

Yvonne Monaghan, CFO

 

Tel: 020 3757 4992 ( on the day)

 

Tel: 01928 704 600 (thereafter)

 

 

 

Investec Investment Banking (NOMAD)

Camarco (Financial PR)

David Flin

Ginny Pulbrook

Carlton Nelson

Ben Woodford

Virginia Bull

Oliver Head

Tel: 020 7597 4000

Tel: 020 3757 4992

 

 

 

 

Note

Throughout this statement 'adjusted operating profit' refers to continuing operating profit before amortisation of intangible assets (excluding software amortisation) and exceptional items.  'Adjusted profit before taxation' refers to adjusted operating profit less total finance cost.  'Adjusted EBITDA' refers to adjusted operating profit for the relevant period plus the depreciation charge for property, plant and equipment and software amortisation. 'Adjusted EPS' refers to EPS calculated based on adjusted profit after taxation. The Board considers that 'adjusted operating profit', 'adjusted profit before taxation', 'adjusted EBITDA' and 'adjusted EPS', which all exclude the effects of non-recurring items or non-operating events, provide useful information for Shareholders on underlying trends and performance.

 

OPERATIONAL AND FINANCIAL REVIEW

 

Financial Results

Total revenue for the year to 31 December 2019 increased by 9.2% to £350.6 million (2018: £321.1 million).  This reflects the Group's continuing strong organic growth performance of 6.5%, the benefit from the acquisition of Fresh Linen in November 2019 together with the purchase of a number of contracts in January 2019 and July 2019, as well as the full year benefit of acquisitions completed in 2018. 

 

Adjusted operating profit increased by 14.8% to £52.8 million (2018: £46.0 million) and reflects the revenue growth, production efficiency improvements and a modest benefit of £1.1 million following the adoption of IFRS 16.

 

The total finance cost was £4.6 million (2018: £3.5 million).  Whilst underlying borrowing costs have reduced slightly and notional interest reduced by £0.2 million, the implementation of IFRS 16 resulted in an additional cost of £1.5 million in respect of recognised lease liabilities.

 

Adjusted profit before taxation increased by 13.4% to £48.2 million (2018: £42.5 million) and was slightly adversely impacted by a net cost of £0.4 million from the adoption of IFRS 16.

 

Statutory profit before taxation, after amortisation of intangible assets (excluding software amortisation) of £10.1 million (2018: £8.8 million) and exceptional items of £nil (2018: £0.6 million), increased by 15.1% to £38.1 million (2018: £33.1 million).

 

Adjusted diluted earnings per share increased by 12.9% to 10.5 pence (2018: 9.3 pence).  Diluted earnings per share, after amortisation of intangible assets and exceptional items, increased by 15.3% to 8.3 pence (2018: 7.2 pence).

 

Dividend

We are pleased to recommend an increased final dividend of 2.35 pence per share (2018: 2.1 pence), which reflects the Group's strong performance and the Board's confidence in the future prospects of the business.  Together with the interim dividend, this takes the total dividend for the year to 3.5 pence per share (2018: 3.1 pence), an increase of 12.9% year-on-year.

 

The proposed final dividend, if approved by Shareholders, will be paid on 7 May 2020 to Shareholders on the register at close of business on 14 April 2020. The ex-dividend date is 9 April 2020.

 

Finances

Total net debt (excluding the impact of IFRS 16) at the year-end stood at £87.7 million (31 December 2018: £98.4 million).  The Group's strong trading performance and cash generation helped to offset the impact of both the acquisitions we made in the year and our significant investment in plant and equipment across the business together with new rental stock to support growth. The Group's net debt to adjusted EBITDA leverage ratio (excluding the impact of IFRS 16) was 1.3:1 at the end of December 2019 (2018: 1.6:1). After including the impact of IFRS 16, net debt at December 2019 was £127.7 million.

 

The Group remains well funded. A revolving credit facility of £135.0 million runs to August 2023.  This facility is considerably in excess of the anticipated level of borrowings with comfortable headroom on all bank covenants for the foreseeable future.

 

Interest payable on bank borrowings is based upon LIBOR plus a margin which is linked to gearing levels.  The applicable margin during 2019 was an average of 1.625% and will be 1.5% for at least the first quarter of 2020. We have mitigated our exposure to future increases in LIBOR rates through the use of interest rate hedging, details of which are given in note 14 of this statement. 

 

 

 

 

Post-Employment Benefits

The recorded net deficit after taxation for all post-employment benefit obligations increased to £6.1 million at 31 December 2019 from £3.8 million at 31 December 2018. The increase reflects the net impact of a reduction in the discount rate and in the assumed inflation rate (RPI) offset by higher than assumed asset returns and the payment of the deficit contribution.

 

Asset allocation remains under constant review with the Trustee. Changes continue to be made to more appropriately match assets and the resultant cash flows against the remaining scheme liabilities and the timing of benefit payments. The interest rate and inflation risks to the Scheme have been reduced to a more acceptable level through LDI funds, with a current effective hedge target of 75%. This remains under regular review.

 

The current agreement with the Trustee of the defined benefit pension scheme required deficit recovery payments of £1.9 million in the year to December 2019 and this is expected to continue at least until after the actuarial valuation as at 30 September 2019 is finalised during 2020.

 

OPERATIONAL REVIEW

 

Our Businesses

The Group has reported another year of substantial organic growth.  Both the Workwear and HORECA (Hotel, Restaurant and Catering) divisions have delivered high levels of new business wins and maintained consistently high levels of customer satisfaction scores which in turn contributed to very high retention levels.  The acquisition of Fresh Linen, a linen plant based in Clacton-on-Sea, was a welcome addition to our coverage for high volume linen in the South East.

 

We have continued to invest in a number of our plants to further improve production efficiencies and to increase capacity to support the organic sales growth being achieved.

 

Our Group now comprises of textile services businesses that trade through a number of very well recognised brands, servicing the UK's Workwear and HORECA sectors. Currently the 'Johnsons Workwear' brand operates in the workwear market and, within HORECA, 'Stalbridge', 'South West' and 'London Linen' provide premium linen services to the restaurant, hospitality and corporate events market and 'Bourne', 'Afonwen', 'PLS' and 'Fresh' provide high volume hotel linen services.

 

As previously indicated, the rollout of the new Group wide corporate brand which links together the various local brands and extends national brand recognition is underway. This is expected to take up to three years to fully implement and the associated modest cost will not have a material impact on the reported earnings or cash flow of the Group over that period.

 

Strong new sales and business retention helped deliver revenue growth of 9.2% to £350.6 million (2018: £321.1 million). This increase includes an additional eight months of trading from South West Laundry, acquired in August 2018, one month of trading from Fresh, acquired on 30 November 2019, and additional revenue from a small number of hospitality contracts acquired in January and July 2019. Our underlying organic growth was 6.5% (2018: 7.8%).

 

Adjusted operating profit from our Textile Rental businesses increased by £6.8 million to £57.5 million (2018: £50.7 million), an increase of 13.4%, with the operating margin improving slightly to 16.4% (2018: 15.8%). This includes a benefit of £1.1 million from the implementation of IFRS 16, in the absence of which the margin would have been 16.1%.

 

Workwear Division

Now operating as Johnsons Workwear, we provide workwear rental and laundry services to some 36,000 customers in the UK from small local businesses to the largest companies covering food related and other industrial sectors.

 

The total revenue for the Workwear division was £135.3 million (2018: £128.8 million), an increase of 5.0%. Adjusted operating profit increased by 7.5% to £24.4 million (2018: £22.7 million) with an improved margin of 18.0% (2018: 17.6%). This includes a modest benefit of £0.4 million from the implementation of IFRS 16.

 

Trading for 2019 was strong, with revenue increasing 5% year on year and volumes exceeding 1.7 million items per week.  Revenue was supported by strong new sales, with particular focus on 'new to rental' customers which accounted for 17.6% of new business won. Retention levels remained high at 95% as did the sale of additional products to existing customers. Sales and retention success have been complemented by excellent customer service provided at a local plant level, where the annual customer satisfaction survey results gave a high score of 86% satisfaction, in line with last year.

 

Rebranding has provided the opportunity to refresh all signage at our workwear premises, introduce a new colour format for vehicles from white to blue and create a bespoke new uniform for all employees.

 

The business continues to focus on efficiency, achieving this by continuous improvement of our processes and investment. Birmingham benefited from the installation of new folding equipment and conveyor systems for its high care area, improving its folding capacity by 20%. Perth, Bristol and Manchester also all received new folding equipment to increase capacity. The Aberdeen depot was relocated to a new, significantly larger, location towards the end of the year, underpinning the opportunity for volume growth in the North of Scotland. Our Basingstoke site has been expanded with the addition of an 11,000 square foot unit adjacent to the current building which will provide increased office space and significant additional processing capacity of 40%. This unit will be fitted with the latest automated sortation system in order to maximise processing efficiencies and is expected to be operational during the second quarter of 2020. 

 

On 25 January 2020 a fire occurred at our site in Exeter resulting in significant damage and preventing its use for processing.  Our Operational team immediately mobilised our business continuity plans and has worked to ensure that the service to our customers has been maintained.  The processing of garments for our Exeter customers is currently being undertaken by nearby workwear sites and a temporary depot established in Exeter. We are working closely with our insurers in relation to the insurance claim and to agree plans for the future of our Exeter site. The incident is not expected to have an impact on the trading performance of the business.

 

Our Academy continues to provide development opportunities for our employees. Our Learning Development Department is providing a wide range of blended training opportunities for employees at all levels throughout our business, including apprenticeship schemes.  The training and development of our employees was recognised by the Princess Royal Training Award, presented by Her Royal Highness Princess Anne at St. James's Palace in October.  The expertise within our business has been strengthened with the internal promotion and appointment of subject matter experts who have built strong relationships throughout the business.  In September an Employee Engagement Survey was undertaken, achieving an excellent response rate and an 82% result for employee engagement.  Results have provided five key areas for focus and various initiatives have been agreed for roll out during 2020.

 

The business has been nominated for two awards of the Institute of Customer Service - "Best Use of Customer Insight" and "Quality Service Provider". 

 

Our Product Development Team successfully and proactively continues to manage our product range through our on-line dynamic catalogue, ensuring that our sales and service teams are aligned with our customers' requirements and are keeping pace with fabric and garment innovation. The business continues to focus on expanding the range of stocked garments for all customer sectors.

 

HORECA Division

The total revenue for the HORECA division was up 12.0% to £215.3 million (2018: £192.3 million).  This increase includes contributions from additional months of trading from acquisitions completed in 2018 and 2019. New business sales were strong, contributing to underlying organic growth of 7.4%.

 

Adjusted operating profit increased to £33.1 million (2018: £28.0 million) with an operating margin of 15.4% (2018: 14.6%). This includes a benefit of £0.7 million from the implementation of IFRS 16.

 

Our Hotel, Restaurant and Catering brands, 'Stalbridge', 'South West Laundry' and 'London Linen' delivered strong organic growth during 2019. The expanded sales and marketing function, which is now in place across the three brands, is bringing benefits of additional sales lead generation, better database use and increased brand awareness.  Websites have been upgraded and refreshed and we continue with search engine optimisation (SEO) activity, web chat and social media as means to support the more traditional methods of sales generation, such as the launch of the new London Linen sales brochure. Service levels have remained high and our customer survey results improved encouragingly during the year, especially the scores in relation to service response and actions.

 

We now have ten processing sites across the three brands and have continued to move customers between sites to deliver more locally where possible. We have further consolidated our customer distribution in the West Country through South West Laundry and have moved work from plants where capacity is at a premium into Wrexham and Southall as we are realising the benefits of previous investment, improvement and expansion of those sites.

 

Further investments have been made in replacement ironing equipment across the estate to increase efficiency, maintain or improve quality and reduce energy use.  A water recycling plant, able to return a significant percentage of our used water, is about to go on trial in our Shaftesbury location and we have reduced the weight of the clear wrap (which is recyclable) used to protect our finished linen and work wear. We are presently trialling an electric vehicle, for London deliveries, out of our Southall location.

 

Our operation in Grantham was expanded by installing a soiled bag system and increasing the size of the despatch and packing areas to accommodate sales growth and a significant amount of business acquired in the first quarter of 2019, which has been integrated successfully. The main Southall factory has added a new despatch area to accommodate extra capacity and better deal with the weekly work fluctuations caused by the London restaurant market, especially during peak season. A number of restaurant contracts were acquired in July and the work was integrated smoothly and successfully during the second half of 2019.

 

On 28 February 2020 we completed the purchase of a number of contracts which will be transferred into our Shaftesbury site, adding annualised revenue of £1.6 million. We expect that some 25 employees of the vendor will join us in Shaftesbury.

 

2019 marked another successful year in the ongoing development of our high volume linen business, 'Johnsons Hotel Linen', which has been created from the amalgamation of several leading family businesses across the UK including the 'Afonwen', 'Bourne' and 'PLS' brands. The acquisition of Fresh Linen in November further expands our geographic coverage in the South East.

 

Despite ever increasing record volumes across the business, service levels have continued to increase with outstanding levels of customer satisfaction and very high retention rates throughout the year. We have continued to work hard to ensure a real focus on delivering accurately the right quantity of linen, with the right quality, in full, on time and with no surprises for our customers. In any high volume linen service the accuracy of deliveries is key and we have achieved real progress in significantly reducing any missed or short deliveries. This has been achieved through strong operational focus on purchasing the right linen to meet customer demand whilst carefully managing linen investment to those areas most needed as well as improved purchasing processes throughout the business.

 

The construction of the building for our £10.0 million new operational facility in Leeds was completed on time and to budget with the construction developer. We were very pleased by the quality of the final build on handover. The tender of equipment and fit out progressed well and resulted in the award of a multi-million pound laundry equipment and fit out contract to three contractors all of whom have worked on similar projects on other Hotel Linen sites in the past and therefore have proven track records in successfully delivering projects of this size and scale.

 

Volumes during the year broadly held up and were maintained despite some periods of softness around points of Brexit uncertainty but these were more than offset by additional new business and improved efficiencies delivered across the business. Our national accounts and sales teams continued to perform well and ensure high retention rates.

 

We continue to win a significant amount of organic growth sales from both current and new customers.  We were particularly delighted to win a major prestigious new customer account, in conjunction with our sister business, Johnsons Stalbridge, The Gleneagles Hotel, an iconic country estate and resort hotel in Scotland for our Edinburgh site towards the end of the year. We also continued to gain from a series of new build and bolt-on acquisitions within our customer base as the hotel market continues to consolidate and add new rooms.

 

Rebranding has gathered pace towards the end of the year with the formal launch of our new brand, including rolling out our highly visible washing line livery across our commercial fleet at all sites which will become increasingly prevalent across the business in 2020.

 

We were also delighted when we received confirmation at the end of the year of our highest ever customer satisfaction scores, benchmarked externally, in recognition of the strong focus on service delivery and customer satisfaction during the year. We have also continued to invest in people and processes with employees from several sites undertaking customer service NVQ qualifications. Work has commenced on developing our new IT solution which will be rolled out during 2020 to provide a unified IT platform enabling further enhancements to our customer experience.

 

On 30 November 2019 we acquired Fresh Linen Holdings Limited, based in Clacton-on-Sea, with a distribution depot in Rainham, London. Fresh Linen is a leading laundry in the Essex and London markets, an area significantly underrepresented by Johnsons Hotel Linen. The business specialises in supplying hotels in the corporate 4 star and budget sectors as well as being the leading supplier of gym club towel facilities to leading brands in that market. This helps us to diversify our customer base and benefit from offering a service to a new segment in the market where we had limited previous experience. The integration of that business continues to progress well and to plan. As anticipated at the time of the acquisition we have just announced plans to refit the wash-house and finishing line with modern and highly efficient equipment at an estimated cost of £3.0 million. This will increase both the efficiency of the site as well as adding further capacity to service customers in the South East.  We are delighted to welcome Fresh Linen's employees to the Johnsons family of businesses.

 

We also successfully tendered for and retained our largest customer, Premier Inn, in recognition of our strong ongoing relationship, strength of geographic coverage and understanding of their needs.

 

Overall, 2019 has proved to be a significant year in the ongoing development of Johnsons Hotel Linen, despite some capacity constraints which are being addressed through the opening in Q2 2020 of our new Leeds production facility. We continue to be pleased by the overall strong operational and financial performance of the business. It is a testament to the quality of the businesses that we have acquired over the last six years that we are increasingly seen as the market leader in our core markets.

 

System Development

During the year we completed the installation of the new finance system in our Workwear, Stalbridge and Hotel Linen businesses.  Work has started on the installation of a new laundry management system with the first of our Hotel Linen plants expected to be live in the second quarter of 2020. Subsequent Hotel Linen plants will be rolled out over the next twelve months. Work is also underway on a new laundry management system for Workwear, which is expected to be rolled out in 2021.

 

Employees

Our employees across the business have ensured that we continue to provide market leading customer service.  The Board would like to thank them for their significant contribution to the continuing success of the Group.

 

Board Changes

Following the successful transition of Peter Egan into the role of CEO, a process has commenced to identify a new Chairman to take over from Bill Shannon when he steps down from the Board. A further announcement will be made at the appropriate time.

Macroeconomic Influences

The potential impact from Brexit and the continuing uncertainty around the post Brexit arrangements are not yet clear.  We will continue to review the mitigating actions we have in place as the Brexit process evolves and will implement any appropriate actions.

 

Whilst we have not as yet seen any impact on trading from the Covid-19 virus, we will continue to monitor the situation over the coming weeks. We will seek to mitigate the risk of impact that the virus may have on our employees, customers and supply chain.

 

Outlook

The Group's performance since the year end has been in line with management expectations. 

 

We are looking forward to the opening of our new Leeds site which will bring further capacity on stream. In the short term, and as anticipated, this additional site may have a small adverse impact on the HORECA margin in 2020 as we build throughput of the site to reach the optimum level.

 

We are continuing to plan for investment in our other sites, particularly where capacity is under pressure.  This investment to provide capacity for further organic growth, together with identifying further prospective acquisitions, will ensure the future success of the Group.

 

 

By order of the Board

 

 

 

Peter Egan  Yvonne Monaghan

Chief Executive Officer  Chief Financial Officer

2 March 2020  2 March 2020

 

 

 

CONSOlidated Income Statement

 

 

 

Year ended

31 December

2019

Year ended

31 December

2018

 

 

Note

£m

£m

 

 

 

 

 

 

 

 

 

 

 

Revenue

2

350.6 

321.1 

 

 

 

 

 

 

Operating profit

2

42.7 

36.6 

 

 

 

 

 

 

Operating profit before amortisation of intangible assets

(excluding software amortisation) and exceptional items

2

52.8 

46.0 

 

 

 

 

 

 

Amortisation of intangible assets (excluding software amortisation)

 

(10.1)

(8.8)

 

 

 

 

 

 

Exceptional items

3

 

 

 

  - Costs in relation to business acquisition activity

 

 - 

 (0.6)

 

Operating profit

2

42.7 

36.6 

 

 

 

 

 

 

Finance cost

4

(4.6)

(3.5)

 

 

 

 

 

 

Profit before taxation

 

38.1 

33.1 

 

 

 

 

 

 

Taxation charge

6

(7.2)

(6.3)

 

 

 

 

 

 

Profit for the year attributable to equity holders

 

30.9 

26.8 

 

 

 

 

 

 

Earnings per share

7

 

 

 

Basic earnings per share

 

8.4p 

7.3p 

 

 

 

 

 

 

Diluted earnings per share

 

8.3p 

7.2p 

 

 

 

 

 

Adjusted basic earnings per share

 

10.6p 

9.4p 

 

 

 

 

 

 

Adjusted diluted earnings per share

 

10.5p 

9.3p 

 

        

 

 

 

Consolidated Statement of COMPREHENSIVE Income

 

 

Year ended 

31 December 

2019 

£m 

Year ended 

31 December

2018

£m

 

 

 

Profit for the year

30.9 

26.8 

 

 

 

Items that will not be subsequently reclassified to profit or loss

 

 

Re-measurement and experience (losses) / gains on post-employment benefit obligations

(4.5)

5.7 

Taxation in respect of re-measurement and experience losses / (gains)

0.7 

(1.1)

Items that may be subsequently reclassified to profit or loss

 

 

Cash flow hedges (net of taxation) - fair value losses

(0.2)

(0.3)

  - transfers to administrative expenses

0.1 

(0.4)

  - transfers to finance cost

0.2 

0.2 

TOTAL OTHER COMPREHENSIVE (LOSS) / INCOME FOR THE YEAR

(3.7)

4.1 

TOTAL COMPREHENSIVE INCOME FOR THE YEAR

27.2 

30.9 

 

 CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

 

 

Share

Capital

Share

Premium

Merger Reserve

Capital Redemption Reserve

Hedge Reserve

Retained Earnings

Total

Equity

 

£m

£m

£m

£m

£m

£m

£m

 

 

 

 

 

 

 

 

Balance at 31 December 2017

36.6

15.2

1.6

0.6

(0.1)

113.7 

167.6 

 

 

 

 

 

 

 

 

Change in accounting

standard

-

-

-

-

1.0 

1.0 

 

 

 

 

 

 

 

 

Restated balance at 1 January 2018

36.6

15.2

1.6

0.6

(0.1)

114.7 

168.6 

 

 

 

 

 

 

 

 

Profit for the year

-

-

-

-

26.8 

26.8 

Other comprehensive income

-

-

-

-

(0.5)

4.6 

4.1 

Total comprehensive income for the year

-

-

-

-

(0.5)

31.4 

30.9 

 

 

 

 

 

 

 

 

Share options

(value of employee services)

-

-

-

0.8 

0.8 

Deferred tax on share options

-

-

-

0.1 

0.1 

Issue of share capital

0.2

0.5

-

-

0.7 

Dividend paid

-

-

-

(10.7)

(10.7)

Transactions with Shareholders recognised directly in Shareholders' equity

0.2

0.5

-

-

(9.8)

(9.1)

 

 

 

 

 

 

 

 

Balance at 31 December 2018

36.8

15.7

1.6

0.6

(0.6)

136.3 

190.4 

 

 

 

 

 

 

 

 

Change in accounting

standard (note 22)

-

-

-

-

0.2 

0.2 

 

 

 

 

 

 

 

 

Restated balance at 1 January 2019

36.8

15.7

1.6

0.6

(0.6)

136.5 

190.6 

 

 

 

 

 

 

 

 

Profit for the year

-

-

-

-

30.9 

30.9 

Other comprehensive income / (loss)

-

-

-

-

0.1 

(3.8)

(3.7)

Total comprehensive income for the year

-

-

-

-

0.1 

27.1 

27.2 

 

 

 

 

 

 

 

 

Share options

(value of employee services)

-

-

-

-

0.8 

0.8 

Purchase of own shares by EBT

-

-

-

-

(0.2)

(0.2)

Current tax on share options

-

-

-

-

0.3 

0.3 

Deferred tax on share options

-

-

-

-

0.2 

0.2 

Issue of share capital

0.2

0.4

-

-

0.6 

Dividend paid

-

-

-

-

(12.0)

(12.0)

Transactions with Shareholders recognised directly in Shareholders' equity

0.2

0.4

-

-

(10.9)

(10.3)

 

 

 

 

 

 

 

 

Balance at 31 December 2019

37.0

16.1

1.6

0.6

(0.5)

152.7 

207.5 

             

 

The Group has an Employee Benefit Trust (EBT) to administer share plans and to acquire shares, using funds contributed by the Group, to meet commitments to employee share schemes.  At 31 December 2019 the EBT held 12,468 shares (2018: 16,526).

 

Consolidated Balance Sheet

 

 

 

 

 

As at

31 December

2019

As at

31 December

2018

 

Note

£m

£m

 

Note

 

 

NON-CURRENT ASSETS

 

 

 

Goodwill

 

130.5 

128.1 

Intangible assets

10

36.7 

39.3 

Property, plant and equipment

11

104.0 

96.0 

Right of use assets

12

39.0 

Textile rental items

13

56.8 

56.4 

Trade and other receivables

 

0.7 

0.7 

Deferred income tax assets

 

2.6 

1.8 

 

 

370.3 

322.3 

 

 

 

 

CURRENT ASSETS

 

 

 

Inventories

 

2.3 

2.8 

Trade and other receivables

 

54.5 

52.1 

 

Cash and cash equivalents

 

8.3 

7.1 

 

 

65.1 

 

62.0 

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

Trade and other payables

 

69.2 

 

 

64.8 

 

 

 

Current income tax liabilities

 

4.5 

5.1 

Borrowings

14

10.9 

 

14.5 

 

Lease liabilities

15

5.6 

Provisions

 

1.4 

 

1.5 

 

 

 

 

91.6 

 

 

 

85.9 

 

 

 

 

 

 

 

NON-CURRENT LIABILITIES

 

 

 

 

 

 

 

 

 

Post-employment benefit obligations

 

9

7.3 

4.6 

Deferred income tax liabilities

 

 

6.8 

7.6 

Trade and other payables

 

 

0.5 

2.3 

Borrowings

 

14

84.7 

91.0 

Lease liabilities

 

15

34.8 

Derivative financial liabilities

 

0.5 

0.7 

Provisions

 

1.7 

1.8 

 

 

136.3 

108.0 

NET ASSETS

 

207.5 

190.4 

 

 

 

 

 

 

 

 

CAPITAL AND RESERVES ATTRIBUTABLE TO THE COMPANY'S SHAREHOLDERS

 

 

 

Share capital  18

13

37.0 

36.8 

 

15.

 

 

 

Share premium

 

16.1 

15.7 

Merger reserve

 

1.6 

1.6 

Capital redemption reserve

 

0.6 

 

0.6 

 

Hedge reserve

 

(0.5)

 

 

.

(0.6)

 

 

.

Retained earnings

 

152.7 

136.3 

TOTAL SHAREHOLDERS' EQUITY

 

207.5 

 

 

 

190.4 

 

 

 

        

 

The notes on pages 13 to 30 form an integral part of these condensed consolidated financial statements.  The condensed consolidated financial statements on pages 9 to 30 were approved by the Board of Directors on 2 March 2020 and signed on its behalf by:

 

 

 

 

Yvonne Monaghan

Chief Financial Officer

 

 Consolidated Statement OF Cash Flows

 

 

Year ended

31 December

2019

Year ended

31 December

2018

 

Note

£m

£m

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

Profit for the year

 

30.9 

26.8 

Adjustments for:

 

 

 

  Taxation charge

 

6

7.2 

6.3 

  Total finance cost 

 

4

4.6 

3.5 

  Depreciation

 

66.1 

55.3 

  Amortisation

10

10.2 

8.9 

  Decrease in inventories

 

0.6 

0.1 

  Increase in trade and other receivables

 

(0.5)

(2.8)

  Increase / (decrease) in trade and other payables

 

2.2 

(3.2)

  Costs in relation to business acquisition activity

 

0.6 

  Deficit recovery payments in respect of post-employment benefit obligations

 

(1.9)

(1.9)

  Share-based payments

 

0.8 

0.8 

  Post-employment benefit obligations

 

(0.1)

  Decrease in provisions

 

(0.2)

(0.5)

Cash generated from operations

 

120.0 

93.8 

Interest paid

 

(4.6)

(3.5)

Taxation paid

 

(9.3)

(7.8)

Net cash generated from operating activities

 

106.1 

82.5 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

Acquisition of businesses (net of cash and overdrafts acquired)

19

(8.5)

(14.0)

Purchase of other intangible assets

 

(2.3)

Purchase of property, plant and equipment

 

(18.8)

(17.5)

Purchase of software

 

(1.2)

(0.6)

Proceeds from sale of property, plant and equipment

 

0.3 

0.2 

Purchase of textile rental items

 

(48.2)

(48.9)

Proceeds received in respect of special charges

 

2.3 

2.2 

Net cash used in investing activities

 

(76.4)

(78.6)

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

Proceeds from borrowings

 

88.0 

86.0 

Repayment of borrowings

 

(91.1)

(77.0)

Capital element of leases (2018: Capital element of finance leases)

 

(13.2)

(3.9)

Purchase of own shares by EBT

 

(0.2)

Proceeds from issue of Ordinary shares

 

0.6 

0.7 

Dividend paid

 

(12.0)

(10.7)

Net cash used in financing activities

 

(27.9)

(4.9)

 

 

 

 

Net increase / (decrease) in cash and cash equivalents

 

1.8 

(1.0)

Cash and cash equivalents at beginning of the year

 

(4.7)

(3.7)

Cash and cash equivalents at end of the year

16

(2.9)

(4.7)

 

 

 

 

Cash and cash equivalents comprise:

 

 

 

Cash

 

8.3 

7.1 

Overdraft

 

(11.2)

(11.8)

Cash and cash equivalents at end of year

16

(2.9)

(4.7)

 

NOTES TO THE PRELIMINARY ANNOUNCEMENT

 

1  BASIS OF PREPARATION & FORWARD LOOKING STATEMENTS

 

Basis of Preparation

The financial information contained within this Preliminary Announcement has been prepared on a going concern basis in accordance with International Financial Reporting Standards as adopted by the European Union (IFRS), IFRS Interpretations Committee (IFRS IC) interpretations and the Companies Act 2006 applicable to companies reporting under IFRS.

 

Other than as set out in note 22, the financial information has been prepared using accounting policies consistent with those set out in the 2018 Annual Report.

 

The financial information set out within this Preliminary Announcement does not constitute the Company's statutory accounts for the years ended 31 December 2019 or 31 December 2018 within the meaning of Section 434 of the Companies Act 2006, but is derived from those accounts.

 

Statutory accounts for 2018 have been delivered to the Registrar of Companies, and those for 2019 will be delivered as soon as practicable but not later than 30 April 2020.  The auditor has reported on those accounts; the reports were unqualified and did not contain a statement under Section 498(2) or (3) of the Companies Act 2006.

 

Going Concern

The Group currently meets its day-to-day working capital requirements through committed bank facilities which run to at least 9 August 2023.  Current economic conditions continue to create uncertainty, particularly over the level of demand for the Group's services.  The Group's latest forecasts and projections, taking account of reasonably possible changes in trading performance, show that there is not a substantial doubt that the Group should be able to operate within the level of its current facilities for a period of at least 12 months from the date of these condensed consolidated financial statements.

 

As a consequence, and having reassessed the principal risks and uncertainties, the Directors considered it appropriate to adopt the going concern basis of accounting in preparing the condensed consolidated financial statements.

 

Forward Looking Statements

Certain statements in these condensed consolidated financial statements constitute forward-looking statements.  Any statement in this document that is not a statement of historical fact including, without limitation, those regarding the Group's future expectations, operations, financial performance, financial condition and business is a forward-looking statement.  Such forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially.  These risks and uncertainties include, among other factors, changing economic, financial, business or other market conditions.  These and other factors could adversely affect the outcome and financial effects of the plans and events described in these condensed consolidated financial statements.  As a result you are cautioned not to place reliance on such forward-looking statements.  Nothing in this document should be construed as a profit forecast.

 

 

2  SEGMENT ANALYSIS

 

Segment information is presented based on the Group's management and internal reporting structure as at 31 December 2019.

 

The chief operating decision-maker has been identified as the Board of Directors (the Board).  The Board reviews the Group's internal reporting in order to assess performance and allocate resources.  The Board determines the operating segments based on these reports and on the internal reporting structure. 

 

For reporting purposes, the Board considered the aggregation criteria set out within IFRS 8, 'Operating Segments', which allows for two or more operating segments to be combined as a single reporting segment if:

1)  aggregation provides financial statement users with information that allows them to evaluate the business and the environment in which it operates; and

2)  they have similar economic characteristics (e.g. similar long-term average gross margins would be expected) and are similar in each of the following respects:

§ the nature of the products and services;

§ the nature of the production processes;

§ the type or class of customer for their products and services;

§ the methods used to distribute their products or provide their services; and

§ the nature of the regulatory environment (i.e. banking, insurance or public utilities), if applicable.

 

The Board deem it appropriate to present two reporting segments (in addition to 'Discontinued Operations' and 'All Other Segments'), being:

1)  Workwear: comprising of our Workwear business only; and

2)  Hotel, Restaurants and Catering ('HORECA'): comprising of our Stalbridge, London Linen, Hotel Linen and Fresh Linen businesses, each of which are a separate operating segment.

 

The Board's rationale for aggregating the Stalbridge, London Linen, Hotel Linen and Fresh Linen operating segments into a single reporting segment is set out below:

§ the gross margins of each operating segment are within a similar range, with the long-term average margin expected to further align;

§ the nature of the customers, products and production processes of each operating segment are very similar;

§ the nature of the regulatory environment is the same due to the similar nature of products, processes and customers involved; and

§ distribution is via exactly the same method across each operating segment.

 

The Board assesses the performance of the reporting segments based on a measure of operating profit, both including and excluding the effects of non-recurring items from the reporting segments, such as restructuring costs and impairments when the impairment is the result of an isolated, non-recurring or non-operating event.  Interest income and expenditure are not included in the result for each reporting segment that is reviewed by the Board.  Segment results include items directly attributable to a segment as well as those that can be allocated on a reasonable basis, for example rental income received by Johnson Group

 

 

2  SEGMENT ANALYSIS (continued)

 

Properties PLC (the property holding company of the Group) is credited back, where appropriate, to the paying company for the purpose of segmental reporting.  There have been no changes in measurement methods used compared to the prior year.

 

Other information provided to the Board is measured in a manner consistent with that in the financial statements.  Segment assets exclude deferred income tax assets, derivative financial assets and cash and cash equivalents, all of which are managed on a central basis.  Segment liabilities include lease liabilities but exclude current income tax liabilities, bank borrowings, derivative financial liabilities, post-employment benefit obligations and deferred income tax liabilities, all of which are managed on a central basis.  These balances are part of the reconciliation to total assets and liabilities.

 

Exceptional items have been included within the appropriate reporting segment as shown on pages 15 to 16.

 

 

§ Workwear

 

 

 

§ Stalbridge

§ London Linen

§ Hotel Linen

§ Fresh Linen

 

 

 

 

 

 

 

NOTES TO THE PRELIMINARY ANNOUNCEMENT (continued)

 

2  SEGMENT ANALYSIS continued

Year ended 31 December 2019

 

Workwear

 

HORECA

All Other Segments

Total

 

 

 

 

 

 

 

 

£m

 

£m

£m

 

£m

 

Revenue

 

 

 

 

 

Rendering of services

 

131.3 

215.0 

346.3 

Sale of goods

 

4.0 

0.3 

4.3 

Total revenue

 

135.3 

215.3 

350.6 

 

 

 

 

 

 

RESULT

 

 

 

 

 

Operating profit / (loss) before amortisation of intangible assets (excluding software amortisation) and exceptional items

 

24.4 

33.1

(4.7)

52.8 

Amortisation of intangible assets (excluding software amortisation)

 

(0.5)

(9.6)

(10.1)

Exceptional items:

 

 

 

 

 

 - Costs in relation to business acquisition activity

 

Operating profit / (loss)

 

23.9 

23.5

(4.7)

42.7 

Total finance cost

 

 

 

 

(4.6)

Profit before taxation

 

 

 

 

38.1 

Taxation

 

 

 

 

(7.2)

Profit for the year attributable to equity holders

 

 

 

 

30.9 

        

 

 

 

 

Discontinued Operations

Workwear

 

HORECA

All Other Segments

Total

 

 

£m

£m

  £m

£m

£m 

BALANCE SHEET INFORMATION

 

 

 

 

 

 

Segment assets

 

139.3 

284.0

1.2

424.5

Unallocated assets:  Deferred income tax assets

 

 

 

 

 

2.6

  Cash and cash equivalents

 

 

 

 

 

8.3

Total assets

 

 

 

 

 

435.4

 

 

 

 

 

 

 

Segment liabilities

 

(3.5)

(39.3)

(65.6)

(4.8)

(113.2)

Unallocated liabilities:  Current income tax liabilities

 

 

 

 

 

(4.5)

  Bank borrowings

 

 

 

 

 

(95.6)

  Derivative financial liabilities

 

 

 

 

 

(0.5)

  Post-employment benefit obligations

 

 

 

 

 

(7.3)

  Deferred income tax liabilities

 

 

 

 

 

(6.8)

Total liabilities

 

 

 

 

 

(227.9)

 

 

 

 

 

 

 

OTHER INFORMATION

 

 

 

 

 

 

Non-current asset additions

 

 

 

 

 

 

- Property, plant and equipment

 

5.6 

13.9

19.5 

- Right of use asset

 

1.7 

4.8

6.5 

- Textile rental items

 

20.5 

25.6

46.1 

- Intangible software

 

1.3 

-

1.3 

Depreciation and amortisation expense

 

 

 

 

 

 

- Property, plant and equipment

 

4.6 

9.3

13.9 

- Right of use asset

 

2.2 

4.9

7.1 

- Textile rental items

 

17.9 

27.2

45.1 

- Intangible software

 

0.1 

-

0.1 

- Customer contracts

 

0.5 

9.6

10.1 

        

 

The results, assets and liabilities of all segments arise in the Group's country of domicile, being the United Kingdom.

 

 

NOTES TO THE PRELIMINARY ANNOUNCEMENT (continued)

 

2  SEGMENT ANALYSIS continued

Year ended 31 December 2018

 

 

Workwear

 

HORECA

All Other Segments

Total

 

 

£m

 

£m

£m

£m

 

 

 

 

 

 

Revenue

 

 

 

 

 

Rendering of services

 

124.2 

192.0 

316.2 

Sale of goods

 

4.6 

0.3 

4.9 

Total revenue

 

128.8 

192.3 

321.1 

 

 

 

 

 

 

RESULT

 

 

 

 

 

Operating profit / (loss) beforeamortisation of intangible assets (excluding software amortisation) and exceptional items

 

22.7 

28.0 

(4.7)

46.0 

Amortisation of intangible assets (excluding software amortisation)

 

(0.5)

(8.3)

(8.8)

Exceptional items:

 

 

 

 

 

  - Costs in relation to business acquisition activity

 

(0.6)

(0.6)

Operating profit / (loss)

 

22.2 

19.1 

(4.7)

36.6 

Total finance cost

 

 

 

 

(3.5)

Profit before taxation

 

 

 

 

33.1 

Taxation

 

 

 

 

(6.3)

Profit for the year attributable to equity holders

 

 

 

 

26.8 

        


 

 

 

 

Discontinued Operations

Workwear

 

HORECA

All Other Segments

Total

 

 

£m

£m

£m

£m

£m 

BALANCE SHEET INFORMATION

 

 

 

 

 

 

Segment assets

 

121.9 

252.0 

1.5 

375.4 

Unallocated assets:  Deferred income tax assets

 

 

 

 

 

1.8 

  Cash and cash equivalents

 

 

 

 

 

7.1 

Total assets

 

 

 

 

 

384.3 

 

 

 

 

 

 

 

Segment liabilities

 

(3.9)

(29.2)

(41.0)

(3.7)

(77.8)

Unallocated liabilities:  Current income tax liabilities

 

 

 

 

 

(5.1)

  Bank borrowings

 

 

 

 

 

(98.1)

  Derivative financial liabilities

 

 

 

 

 

(0.7)

  Post-employment benefit obligations

 

 

 

 

 

(4.6)

  Deferred income tax liabilities

 

 

 

 

 

(7.6)

Total liabilities

 

 

 

 

 

(193.9)

 

 

 

 

 

 

 

OTHER INFORMATION

 

 

 

 

 

 

 

Non-current asset additions

 

 

 

 

 

 

 

- Property, plant and equipment

 

5.0 

11.4

16.4 

 

- Textile rental items

 

21.7 

27.4

49.1 

 

- Intangible software

 

0.7 

-

0.7 

 

Depreciation and amortisation expense

 

 

 

 

 

 

 

- Property, plant and equipment

 

4.8 

8.7

13.5 

 

- Textile rental items

 

16.5 

25.3

41.8 

 

- Intangible software

 

0.1

0.1 

 

- Customer contracts

 

0.5 

8.3

8.8 

 

              

 

The results, assets and liabilities of all segments arise in the Group's country of domicile, being the United Kingdom.

 

NOTES TO THE PRELIMINARY ANNOUNCEMENT (continued)

 

3  EXCEPTIONAL ITEMS

 

2019

2018

 

£m

£m

 

 

 

 

 

 

Costs in relation to business acquisition activity

-

0.6

Total exceptional items

-

0.6

 

Current year exceptional items

Costs in relation to business acquisition activity

During the year, professional fees of £0.1 million were paid relating to the acquisition of Fresh Linen Holdings Limited, together with its trading subsidiary Fresh Linen Limited ('Fresh Linen').  Further information relating to the acquisition is provided in note 19.  This has been offset by £0.1 million of prior year credits relating to previous acquisitions.

 

Prior year exceptional items

Costs in relation to business acquisition activity

During the prior year, professional fees of £0.2 million were paid relating to the acquisition of South West Laundry Holdings Limited, together with its trading subsidiary South West Laundry Limited ('South West').  In addition, costs of £0.3 million were incurred as part of the integration of recent acquisitions.  The remainder of the cost relates to fees and expenses incurred during negotiations with undisclosed targets.

 

 

 

4  TOTAL FINANCE COST

 

 

2019

2018

 

 

£m

£m

 

 

 

 

Finance cost:

 

 

 

- Interest payable on bank loans and overdrafts

 

2.4

2.6

- Amortisation of bank facility fees

 

0.3

0.3

- Finance costs on lease liabilities relating to IAS 17

 

0.3

- Finance costs on lease liabilities relating to IFRS 16

 

1.8

- Notional interest on post-employment benefit obligations

 

0.1

0.3

Total finance cost

 

4.6

3.5

 

 

 

5  ADJUSTED PROFIT BEFORE AND AFTER TAXATION

 

 

 

2019

2018

 

 

£m

£m

 

 

 

 

 

 

 

 

Profit before taxation

 

38.1 

33.1 

Amortisation of intangible assets (excluding software amortisation)

 

10.1 

8.8 

Costs in relation to business acquisition activity

 

0.6 

Adjusted profit before taxation

 

48.2 

42.5 

Taxation thereon

 

(9.1)

(8.0)

Adjusted profit after taxation

 

39.1 

34.5 

 

NOTES TO THE PRELIMINARY ANNOUNCEMENT (continued)

 

6  TAXATION CHARGE

 

2019

2018

 

£m

£m

 

 

 

Current tax

 

 

UK corporation tax charge for the year

9.4 

9.5 

Adjustment in relation to previous years

(0.5)

(0.5)

Current tax charge for the year

8.9 

9.0 

 

 

 

Deferred tax

 

 

Origination and reversal of temporary differences

(1.7)

(2.6)

Changes in tax rate

(0.2)

(0.2)

Adjustment in relation to previous years

0.2 

0.1 

Deferred tax credit for the year

(1.7)

(2.7)

Total charge for taxation included in the Consolidated Income Statement

7.2 

6.3 

 

The taxation charge for the year is the same as (2018: the same as) the effective rate of Corporation Tax in the UK of 19.00% (2018: 19.00%).  A reconciliation is provided below:

 

2019

2018

 

£m

£m

 

 

 

 

 

 

Profit before taxation

38.1 

33.1 

Profit before taxation multiplied by the effective rate of Corporation Tax in the UK

7.2 

6.3 

 

 

 

Factors affecting taxation charge for the year:

 

 

Tax effect of expenses not deductible for tax purposes

0.5 

0.6 

Changes in tax rate

(0.2)

(0.2)

Adjustments in relation to previous years

(0.3)

(0.4)

Total charge for taxation included in the Consolidated Income Statement

7.2 

6.3 

 

Taxation in relation to amortisation of intangible assets (excluding software amortisation) has reduced the charge for taxation on continuing operations by £1.9 million (2018: £1.7 million reduction). There is no taxation in relation to exceptional items in either year.

 

Changes to the UK corporation tax rates were announced on 8 July 2015.  These changes were substantively enacted as part of Finance Bill 2015 on 26 October 2015 and included reductions to the main rate to 19% from 1 April 2017 and to 18% from 1 April 2020. A further change to reduce the rate from 1 April 2020 from 18% to 17% was announced on 16 March 2016.  This change was substantively enacted as part of Finance Bill 2016 on 15 September 2016.

 

Deferred income taxes at the balance sheet date have been measured at 17.0% (2018: 17.5%). The impact of the change in tax rates to 17.0% has been a £0.2 million credit (2018: £0.2 million credit) in the Consolidated Income Statement and £nil (2018: £0.1 million charge) recognised within other comprehensive income.

 

During the year, a £0.7 million credit relating to deferred taxation (2018: £1.0 million charge) has been recognised in other comprehensive income.

 

During the year, a £0.3 million credit relating to current taxation (2018: £nil) and a £0.2 million credit relating to deferred taxation (2018: £0.1 million credit) have been recognised directly in Shareholders' equity.

 

 

 

 

 

NOTES TO THE PRELIMINARY ANNOUNCEMENT (continued) 

 

7  EARNINGS PER SHARE

 

2019

2018

 

£m

£m

 

 

 

 

 

 

Profit for the financial year from continuing operations attributable to Shareholders

30.9 

26.8 

Amortisation of intangible assets from continuing operations (net of taxation)

8.2 

7.1 

Exceptional costs from continuing operations (net of taxation)

0.6 

Adjusted profit attributable to Shareholders

39.1 

34.5 

 

 

 

Weighted average number of Ordinary shares

369,145,562 

366,547,752 

Dilutive potential Ordinary shares

2,710,583 

3,053,927 

Diluted number of Ordinary shares

371,856,145 

369,601,679 

 

 

 

Basic earnings per share

8.4p 

7.3p 

Adjustments for amortisation of intangible assets

2.2p 

1.9p 

Adjustment for exceptional items

0.2p 

Adjusted basic earnings per share

10.6p 

9.4p 

 

 

 

Diluted earnings per share

8.3p 

7.2p 

Adjustments for amortisation of intangible assets

2.2p 

1.9p 

Adjustment for exceptional items

0.2p 

Adjusted diluted earnings per share

10.5p 

9.3p 

 

Basic earnings per share is calculated using the weighted average number of Ordinary shares in issue during the year, excluding those held by the Employee Benefit Trust, based on the profit for the year attributable to Shareholders.

 

Adjusted earnings per share figures are given to exclude the effects of amortisation of intangible assets (excluding software amortisation) and exceptional items, all net of taxation, and are considered to show the underlying performance 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. Options are dilutive under the SAYE scheme, where the exercise price together with the future IFRS2 charge of the option is less than the average market price of the Company's Ordinary shares during the year. Options under the LTIP schemes, as defined by IFRS 2, are contingently issuable shares and are therefore only included within the calculation of diluted EPS if the performance conditions, as set out in the Directors' Remuneration Report, are satisfied.

 

Potentially dilutive Ordinary shares are dilutive at the point, from a continuing operations level, when their conversion to Ordinary shares would decrease earnings per share or increase loss per share.  For the years ended 31 December 2019 and 31 December 2018, potentially dilutive Ordinary shares have been treated as dilutive, as their inclusion in the diluted earnings per share calculation decreases earnings per share from continuing operations.

 

There were no events occurring after the balance sheet date that would have changed significantly the number of Ordinary shares or potentially dilutive Ordinary shares outstanding at the balance sheet date if those transactions had occurred before the end of the reporting period.

 

 

 

 

 

 

 

NOTES TO THE PRELIMINARY ANNOUNCEMENT (continued)

 

8  DIVIDENDS

 

 

2019

2018

Dividend per share

 

 

 

Final dividend proposed

 

2.35p

Interim dividend proposed and paid

 

1.15p

1.00p

Final dividend proposed and paid

 

2.10p

 

 

 

2019

2018

 

 

£m

£m

Shareholders' funds committed

 

 

 

Final dividend proposed

 

8.7

Interim dividend proposed and paid

 

4.3

3.7

Final dividend proposed and paid

 

7.7

 

The Directors propose the payment of a final dividend in respect of the year ended 31 December 2019 of 2.35 pence per share.  This will utilise Shareholders' funds of £8.7 million and will be paid, subject to Shareholder approval, on 7 May 2020 to Shareholders on the register of members on 14 April 2020.  The Trustee of the EBT has waived the entitlement to receive dividends on the Ordinary shares held by the Trust.  In accordance with IAS 10 there is no payable recognised at 31 December 2019 in respect of this proposed dividend.

 

 

9  POST-EMPLOYMENT BENEFIT OBLIGATIONS

 

The Group has applied the requirements of IAS 19, 'Employee Benefits' (revised June 2011) to its employee pension schemes and post-retirement healthcare benefits.  The Group operates a defined benefit pension scheme, the Johnson Group Defined Benefit Scheme ('JGDBS'). The JGDBS was closed to future accrual on 31 December 2014.

 

As part of the Group's objective to reduce its overall pension deficit, deficit recovery payments of £1.9 million (2018: £1.9 million) were paid to the JGDBS.  A net re-measurement and experience loss of £4.5 million has been recognised in the year to December 2019.

 

The gross post-employment benefit obligation and associated deferred income tax asset thereon is shown below:

 

 

2019

£m

2018

£m

 

 

 

Gross post-employment benefit obligation

7.3 

4.6 

Deferred income tax asset thereon

(1.2)

(0.8)

Net liability

6.1 

3.8 

 

The reconciliation of the opening gross post-employment benefit obligation to the closing gross post-employment benefit obligation is shown below:

 

2019

£m

2018

£m

 

 

 

Opening gross post-employment benefit obligation

(4.6)

(12.0)

Notional interest

(0.1)

(0.3)

Deficit recovery payments

1.9 

1.9 

Utilisation of post-retirement healthcare obligation

0.1 

Re-measurement and experience (losses) / gains

(4.5)

5.7 

Closing gross post-employment benefit obligation

(7.3)

(4.6)

 

 

 

 

 

 

NOTES TO THE PRELIMINARY ANNOUNCEMENT (continued)

 

10  INTANGIBLE ASSETS

 

 

  Capitalised software

 

 

2019

 

2018

 

£m

£m

 

 

 

Opening net book value

0.7 

0.1 

Additions

1.3 

0.7 

Amortisation

(0.1)

(0.1)

Closing net book value

1.9 

0.7 

 

 

Other intangible assets

 

 

2019

 

2018

 

£m

£m

 

 

 

Opening net book value

38.6 

43.4 

Additions

2.3 

Business combinations (note 19)

4.0 

4.0 

Amortisation

(10.1)

(8.8)

Closing net book value

34.8 

38.6 

 

Other intangible assets comprise of customer contracts and relationships.  During the year to 31 December 2019, the Group acquired customer contracts valued at £2.3 million. 

 

 

11  PROPERTY, PLANT AND EQUIPMENT

 

 

 

 

2019

2018

 

£m

£m

 

 

 

At 31 December 2018

96.0 

89.3 

Transfers to right of use assets (note 12)

(11.9)

At 1 January 2019

84.1 

89.3 

Additions

19.5 

16.4 

Business combinations (note 19)

 4.3 

4.0 

Depreciation

(13.9)

(13.5)

Disposals

(0.3)

(0.2)

Transfers in from right of use assets (note 12)

10.3 

Closing net book value

104.0 

96.0 

 

Following the adoption of IFRS 16, the transfer between property, plant and equipment and right of use assets represents the reclassification of the net book value of finance lease assets held at 1 January 2019 to right of use assets, offset by the reclassification of the net book value of finance lease assets back to property, plant and equipment where the lease expired in the year to 31 December 2019 and the assets are now owned.

 

CAPITAL COMMITMENTS

 

Orders placed for future capital expenditure contracted but not provided for in the financial statements are shown below:

 

 

 

2019

 

2018

 

£m

£m

 

 

 

Software

0.8

-

Property, plant and equipment

10.3

5.2

 

 

 

 

 

 

 

NOTES TO THE PRELIMINARY ANNOUNCEMENT (continued)

 

 

12  RIGHT OF USE ASSETS

 

 

 

2019

£m

 

 

Recognition of right of use assets

36.1 

Transfers in from property, plant and equipment (note 11)

11.9 

Right of use assets recognised at 1 January 2019

48.0 

Additions

6.5 

Business combinations (note 19)

0.7 

Reassessment / modification of leases previously recognised

1.2 

Depreciation

(7.1)

Transfers out to plant, property and equipment (note 11)

(10.3)

Closing net book value

39.0 

   

 

The reassessment / modification of leases relates to rent increases and extensions to lease terms that have been agreed during the year to 31 December 2019 for property leases that were in place on 1 January 2019 following the adoption of IFRS 16.

 

Following the adoption of IFRS 16, the transfer between right of use assets and property, plant and equipment represents the reclassification of the net book value of finance lease assets held at 1 January 2019 to right of use assets, offset by the reclassification of the net book value of finance lease assets back to property, plant and equipment where the lease expired in the year to 31 December 2019 and the assets are now owned.

 

 

 

13  TEXTILE RENTAL ITEMS

 

 

 

 

2019

 

2018

 

£m

£m

 

 

 

Opening net book value

56.4 

50.0 

Additions

46.1 

49.1 

Business combinations (note 19)

1.7 

1.3 

Depreciation

(45.1)

(41.8)

Special charges

(2.3)

(2.2)

Closing net book value

56.8 

56.4 

 

 

 

 

NOTES TO THE PRELIMINARY ANNOUNCEMENT (continued)

 

14  BORROWINGS

 

2019

2018

£m

£m

 

 

11.2 

11.8 

(0.3)

(0.3)

Obligations under finance lease agreements

3.0 

 

10.9 

14.5 

 

 

 

 

 

84.7

86.6

Obligations under finance lease agreements

4.4

 

84.7

91.0

 

95.6

105.5

 

At 31 December 2019, borrowings were secured and drawn down under a committed facility dated 21 February 2014, as amended and restated on 24 April 2015 and as further amended and restated on 22 April 2016 and 9 August 2018.  This amended facility comprised a £135.0 million rolling credit facility (including an overdraft) which runs to August 2023. Individual tranches are drawn down, in sterling, for periods of up to six months at LIBOR rates of interest prevailing at the time of drawdown, plus the applicable margin.  The margin varies between 1.25% and 2.25%. 

 

The Group has two net overdraft facilities for £5.0 million and £3.0 million with two of its principal bankers (2018: £5.0 million and £3.0 million).

 

As at 31 December 2019, £45.0 million of borrowings were subject to hedging arrangements which have the effect of replacing LIBOR with fixed rates as follows:

§ for £15.0 million of borrowings, LIBOR is replaced with 1.665% from 8 January 2016 to 8 January 2020; and

§ for £15.0 million of borrowings, LIBOR is replaced with 1.070% from 30 January 2019 to 29 January 2021; and

§ for £15.0 million of borrowings, LIBOR is replaced with 1.144% from 30 January 2019 to 31 January 2022.

 

A further hedging arrangement is in place as at 31 December 2019 which commenced on 8 January 2020:

§ for £15.0 million of borrowings, LIBOR is replaced with 0.805% from 8 January 2020 to 9 January 2023.

 

Amounts drawn under the revolving credit facility have been classified as either current or non-current depending upon when the loan is expected to be repaid.

 

The secured bank loans are stated net of unamortised issue costs of £0.6 million (2018: £0.7 million) of which £0.3 million is included within current borrowings (2018: £0.3 million). 

 

Following the adoption of IFRS 16 at 1 January 2019, obligations under finance lease agreements are recognised within lease liabilities and are no longer included within borrowings.

 

 

 

15  LEASE LIABILITIES

 

 

 

2019

£m

 

 

Recognition of lease liability under IFRS 16

37.2 

Previously recognised as finance lease obligations in borrowings

7.4 

Opening lease liabilities recognised at 1 January 2019

44.6 

New leases recognised

6.5 

Business combinations

1.3 

Reassessment / modification of leases previously recognised

1.2 

Lease payments

(15.0)

Finance cost

1.8 

Closing liabilities

40.4 

 

 

Of which are:

 

Current lease liabilities

5.6 

Non-current lease liabilities

34.8 

Closing liabilities

40.4 

 

 

 

 

 

 

 

 

NOTES TO THE PRELIMINARY ANNOUNCEMENT (continued)

 

16  ANALYSIS OF NET DEBT

 

Net debt is calculated as total borrowings net of unamortised bank facility fees, less cash and cash equivalents.  Non-cash changes represent the effects of the recognition and subsequent amortisation of fees relating to the bank facility, changing maturity profiles, debt acquired as part of an acquisition, new finance leases and, following the adoption of IFRS 16, the recognition of lease liabilities entered into during the year.

 

 

At 31

December 2018

 

Adoption of IFRS 16

At 1

January 2019

Cash Flow

Non-cash

Changes

At 31 December 2019

2019

£m

£m

£m

£m

£m

£m

 

 

 

 

 

 

 

Debt due within one year

0.3 

0.3 

1.1 

(1.1)

0.3 

Debt due after more than one year

(86.6)

(86.6)

 2.2 

(0.3)

(84.7)

Finance leases

(7.4)

7.4 

Lease liabilities

-

(44.6)

(44.6)

13.2 

(9.0)

(40.4)

Total debt and lease financing

(93.7)

(37.2)

(130.9)

16.5 

(10.4)

(124.8)

Cash and cash equivalents

(4.7)

(4.7)

1.8 

(2.9)

Net debt

(98.4)

(37.2)

(135.6)

18.3 

(10.4)

(127.7)

 

 

 

At 1

January

2018

Cash Flow

Non-cash

Changes

At 31 December 2018

2018

£m

£m

£m

£m

 

 

 

 

 

Debt due within one year

(1.7)

2.0 

0.3 

Debt due after more than one year

(75.9)

 (11.0)

0.3 

(86.6)

Finance leases

(10.0)

3.9 

(1.3)

(7.4)

Total debt and lease financing

(87.6)

(5.1)

(1.0)

(93.7)

Cash and cash equivalents

(3.7)

(1.0)

(4.7)

Net debt

(91.3)

(6.1)

(1.0)

(98.4)

 

 

The cash and cash equivalents figures are comprised of the following balance sheet amounts:

 

2019

2018

 

£m

 

£m

 

Cash (Current assets)

8.3 

7.1 

Overdraft (Borrowings, Current liabilities)

(11.2)

(11.8)

 

(2.9)

(4.7)

 

 

Finance lease obligations are comprised of the following balance sheet amounts:

 

2019

2018

 

£m

£m

 

 

 

Amounts due within one year (Borrowings, Current liabilities)

(3.0)

Amounts due within one year (Lease Liabilities, Current liabilities)

(5.6)

Amounts due after more than one year (Borrowings, Non-current liabilities)

(4.4)

Amounts due after more than one year (Lease liabilties, Non-current liabilities)

(34.8)

 

(40.4)

(7.4)

 

 

17  RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT

 

2019

2018

 

£m

£m

 

 

 

Increase / (decrease) in cash in year

1.8 

(1.0)

Decrease / (increase) in debt and lease financing

16.5 

(5.1)

Change in net debt resulting from cash flows

18.3 

(6.1)

Debt acquired through business acquisitions

(2.4)

(1.3)

Leases previously recognised as operating leases under IAS 17

(37.2)

Lease liabilities recognised during the period

(7.7)

Non-cash movement in unamortised bank facility fees

(0.3)

0.3 

Movement in net debt

(29.3)

(7.1)

Opening net debt

(98.4)

(91.3)

Closing net debt

(127.7)

(98.4)

NOTES TO THE PRELIMINARY ANNOUNCEMENT (continued)

 

 

18  SHARE CAPITAL

 

 

 

 

2019

 

2018

Issued and Fully Paid

 

 

Shares

£m

Shares

£m

Ordinary shares of 10p each:

 

 

 

 

 

 

-  At start of year

 

 

367,574,210

36.8

366,499,375

36.6

-  New shares issued

 

 

2,186,614

0.2

1,074,835

0.2

-  At end of year

 

 

369,760,824

37.0

367,574,210

36.8

 

Issue of Ordinary shares of 10p each

An analysis of the new shares issued in each year is shown below:

 

 

 

 

2019

 

2018

Issued and Fully Paid

 

 

Shares

£

Shares

£

Ordinary shares of 10p each:

 

 

 

 

 

 

-  Approved LTIP

note 1

 

150,000

15,000

37,500

3,750

-  EBT

note 2

 

1,655,000

165,000

110,000

11,000

-  SAYE

note 3

 

381,614

38,161

927,335

92,734

New shares issued

 

 

2,186,614

218,161

1,074,835

107,484

 

Note 1:  150,000 (2018: 37,500) Ordinary shares were allotted in relation to employee share option exercises.  The total nominal value received was £15,000 (2018: £3,750). 

 

Note 2:  1,655,000 (2018: 110,000) Ordinary shares were allotted to the EBT at nominal value to be used in relation to employee share option exercises.  The total nominal value received was £165,000 (2018: £11,000).  At the time of allotment, the EBT already held 16,256 (2018: 16,256) Ordinary shares of 10 pence each which, together with the 1,655,000 (2018: 110,000) newly allotted Ordinary shares of 10 pence each, were used to satisfy the exercise of 1,654,934 (2018: 110,000) LTIP options.  In addition, the EBT sold a further 3,854 shares and retained the net proceeds.

 

Note 3:  381,614 (2018: 927,335) SAYE Scheme options were exercised with a total nominal value of £38,161 (2018: £92,734).

 

The total proceeds received on allotment in respect of all of the above transactions were £0.6 million (2018: £0.7 million) and

were credited as follows:

 

 

 

 

2019

 

2018

 

 

 

 

£m

 

£m

 

 

 

 

 

 

 

Share capital

 

 

 

0.2

 

0.2

Share premium

 

 

 

0.4

 

0.5

 

 

 

 

0.6

 

0.7

 

 

 

 

NOTES TO THE PRELIMINARY ANNOUNCEMENT (continued)

 

19  BUSINESS COMBINATIONS

 

On 30 November 2019, the Group acquired 100% of the share capital of Fresh Linen Holdings Limited, together with its trading subsidiary Fresh Linen Limited ('Fresh Linen"), for a net consideration of £9.3 million (being a gross consideration of £12.5 million adjusted for normalised working capital, cash and debt like items) plus associated fees.  Since acquisition, Fresh Linen has incurred a £0.1 million loss on revenue of £1.6 million.  Had the business been acquired at the start of the period it is estimated that a profit of £0.7 million would have been generated on revenue of £17.6 million.

 

The provisional fair value of assets and liabilities acquired are as follows:

 

 

Fresh Linen

Fair value adjustments to previous acquisitions

Total

 

£m

£m

£m

 

 

 

 

Intangible assets - Goodwill

2.3 

0.1 

2.4 

Intangible assets - Customer contracts

4.0 

4.0 

Property, plant and equipment

4.3 

4.3 

Right of use assets

0.7 

0.7 

Textile rental items

1.8 

(0.1)

1.7 

Inventories

0.1 

0.1 

Trade and other receivables

3.2 

3.2 

Cash and cash equivalents / (overdraft)

(0.3)

(0.3)

Trade and other payables

(3.3)

(3.3)

Borrowings

(1.1)

(1.1)

Lease liabilities

(1.3)

(1.3)

Current income tax liability

(0.1)

(0.1)

Deferred income tax liability

(1.0)

(1.0)

Net consideration

9.3 

9.3 

 

Goodwill represents the deferred income tax arising on the recognition of the customer contracts plus the expected benefits to the wider Group arising from the acquisition.  None of the acquired goodwill is expected to be deductible for tax purposes.

 

Fresh Linen has been included within the HORECA reporting segment and within the Hotel Linen CGU.

 

In 2018, the Group acquired the entire share capital of South West Laundry Holdings Limited, together with its trading subsidiary South West Laundry Limited ('South West').  Full details are provided in the 2018 Annual Report and Accounts.  During 2019, the initial fair value of the textile rental items acquired as part of the South West acquisition was reduced by £0.1 million, with a corresponding increase in goodwill.

 

Cash flows from business acquisition activity

The cash flows in relation to business acquisition activity are summarised below:

 

 

 

 

 

2019

2018

 

 

 

 

 

£m

£m

Net consideration payable

 

 

 

 

9.3 

13.3 

Contingent and deferred consideration

 

 

 

 

(1.1)

0.2 

Overdraft / (cash) acquired

 

 

 

 

0.3 

(0.1)

Costs in relation to business acquisition activity

 

 

 

 

0.6 

 

 

 

 

 

8.5 

14.0 

 

In respect of contingent and deferred consideration

§ the 2018 figure of £0.2 million reflects the payment of the Star contingent consideration recognised in the prior year;

§ the 2019 figure of £1.1 million reflects the recognition of deferred consideration of £1.4 million for the Fresh Linen acquisition along with the payment of £0.3 million deferred consideration relating to the acquisition of Ashbon in 2015.

 

In respect of 'costs in relation to business acquisition activity':

§ the 2018 cash outflow of £0.6 million included in the table above relates to costs incurred during the year.

 

 

 

NOTES TO THE PRELIMINARY ANNOUNCEMENT (continued)

 

20  CONTINGENT LIABILITIES

 

The Group operates from a number of sites across the UK.  Some of the sites have operated as laundry sites for many years and historic environmental liabilities may exist.  Such liabilities are not expected to give rise to any significant loss.

 

The Group has granted its Bankers and Trustee of the Pension Scheme (the 'Trustee') security over the assets of the Group.  The priority of security is as follows:

§ first ranking security for £28.0 million to the Trustee ranking pari passu with up to £155.0 million of bank liabilities; and

§ second ranking security for the balance of any remaining liabilities to the Trustee ranking pari passu with any remaining bank liabilities.

 

During the period of ownership of the Facilities Management division the Company had given guarantees over the performance of certain contracts entered into by the division.  As part of the disposal of the division the purchaser has agreed to pursue the release or transfer of obligations under the Parent Company guarantees and this is in process.  The Sale and Purchase agreement contains an indemnity from the purchaser to cover any loss in the event a claim is made prior to release.  In the period until release the purchaser is to make a payment to the Company of £0.2 million per annum, reduced pro rata as guarantees are released.  Such liabilities are not expected to give rise to any significant loss.

 

As a condition of the sale of the Facilities Management division in August 2013, the Group has put in place indemnities, to the purchaser, in relation to any future amounts payable in respect of contingent consideration related to the Nickleby acquisition completed in February 2012.  As set out in the 2012 Annual Report and Accounts the maximum amount payable under the terms of the indemnity could be up to £5.0 million.  The Directors believe the risk of settlement at, or near, the maximum level to be remote.

 

 

21  EVENTS AFTER THE REPORTING PERIOD

 

There were no events occurring after the balance sheet date that require disclosing in accordance with IAS 10, 'Events after the reporting period'.

 

 

22  ACCOUNTING POLICIES

 

Except as described below, the condensed consolidated financial statements have been prepared applying the accounting policies, presentation and methods of computation applied by the Group in the preparation of the published consolidated financial statements for the year ended 31 December 2018.

 

(a)  Standards and amendments to standards effective in 2019

 

IFRS 16, 'Leases'

The Group has adopted this new standard from 1 January 2019, applying the modified retrospective approach, which results in the cumulative effect of initially applying this standard being an adjustment to the opening balance of retained earnings as at 1 January 2019. The comparative information for 2018 has not been restated and is presented, as previously reported, under IAS 17.

 

The new standard results in almost all leases being recognised on the Balance Sheet as, from a lessee perspective, the distinction between operating and finance leases is removed. Under the new standard, an asset (the right to use the leased item) and a financial liability to pay rentals are recognised. The only exceptions are short-term and low-value leases. The accounting for lessors has not significantly changed.

 

The Group currently leases both properties and vehicles, comprising cars and commercial vehicles, which under IAS 17, were classified as a series of operating lease contracts with payments made (net of any incentives received from the lessor) charged to profit or loss on a straight-line basis over the period of the lease. From 1 January 2019, under IFRS 16, these leases are recognised as a right of use asset and a corresponding lease liability at the date at which the leased asset is available for use by the Group. Each lease payment is allocated between the liability and finance cost. The finance cost is charged to the Consolidated Income Statement over the lease period using the effective interest method.

 

The right of use asset is depreciated over the shorter of the asset's useful life and the lease term on a straight-line basis.

In applying IFRS 16 for the first time, the Group has used the following practical expedients permitted by the standard:

§ in determining whether existing contracts meet the definition of a lease, the Group has not reassessed those contracts previously identified as leases and not applied the standard to those contracts not previously identified as leases;

§ short-term leases (leases of less than 12 months and leases with less than 12 months remaining) as at the date of adoption of the new standard are not within the scope of IFRS 16;

§ leases for which the asset is of low value (IT equipment and small items of office equipment), are not within the scope of IFRS 16; and

§ the use of a single discount rate to a portfolio of leases with reasonably similar characteristics.

 

On adoption of IFRS 16, the Group recognised lease liabilities in relation to leases which had previously been classified as 'operating leases' under the principles of IAS 17, 'Leases'. For vehicles, these liabilities were measured at the present value of the remaining lease payments, discounted using the lessee's incremental borrowing rate on the current facility as of 1 January 2019, which was 2.48%. The Group also leases various offices and plants, which can differ significantly in terms of property value, location and with leases negotiated on an individual basis, they can contain a wide range of different terms and conditions. The discount rate applied therefore differs by property and ranges from 2.85% - 7.15%. The weighted average lessee's incremental borrowing rate applied to the lease liabilities on 1 January 2019 was 4.46%.

 

Under the modified retrospective approach, the associated right of use assets were measured using the approach set out in IFRS 16.C8(b)(ii), whereby right of use assets are equal to the lease liability, adjusted by the amount of any prepaid (£1.0 million) or accrued lease payments (£2.3 million) (including unamortised lease incentives such as rent free periods). There were no onerous lease contracts that would have required an adjustment to the right of use assets at the date of initial application.

 

 

NOTES TO THE PRELIMINARY ANNOUNCEMENT (continued)

 

22  ACCOUNTING POLICIES (continued)

  For leases previously classified as finance leases, which relate to equipment and vehicles, the Group recognised the carrying amount of the lease asset and lease liability immediately before transition as the carrying amount of the right of use asset and the lease liability at the date of initial application.

 

The overall impact of the adoption of IFRS 16 on the Group's opening Balance Sheet is as follows:

 

 

 

 

 

As at

31 December

2018

 

IFRS 16 adjustment

As at

1 January

2019

 

 

 

£m

 

£m

 

£m

 

Non-current assets

 

 

 

 

Plant, property and equipment

 

96.0

(11.9)

84.1

Right of use assets

 

-

48.0 

48.0

 

 

 

 

 

Current assets

 

 

 

 

Trade and other receivables

 

52.1

(1.0)

51.1

 

 

 

 

 

Current liabilities

 

 

 

 

Trade and other payables

 

64.8

(2.3)

 62.5

Borrowings

 

14.5

(3.0)

11.5

Lease liabilities

 

-

9.2 

9.2

 

 

 

 

 

Non-current liabilities

 

 

 

 

Borrowings

 

91.0

(4.4)

86.6

Lease liabilities

 

-

35.4 

35.4

 

 

 

 

 

Net assets

 

190.4

0.2 

190.6

 

 

 

 

 

Capital and reserves attributable to the Company's Shareholders

 

 

 

 

Retained earnings

 

136.3

0.2 

136.5 

Total equity

 

190.4

0.2 

190.6 

 

 

 

 

 

The adoption of IFRS 16 increased retained earnings as at 1 January 2019 by £0.2 million.  This represents the reversal of previously recognised property cost accruals which are no longer required under the new standard.

 

 

The table below presents a reconciliation from operating lease commitments disclosed at 31 December 2018 to lease liabilities recognised at 1 January 2019.

 

£m

Operating lease commitments disclosed as at 31 December 2018

  51.6 

(Less): short-term and low value leases recognised on a straight-line basis as an expense

  (0.9)

 

  50.7 

Discounted using the lessee's incremental borrowing rate at the date of initial application

  37.2 

Add: finance lease liabilities recognised as at 31 December 2018

  7.4 

Lease liability recognised as at 1 January 2019

  44.6 

 

 

Of which are:

 

Current lease liabilities

  9.2 

Non-current lease liabilities

  35.4 

Lease liability recognised as at 1 January 2019

44.6 

 

NOTES TO THE PRELIMINARY ANNOUNCEMENT (continued)

 

22  ACCOUNTING POLICIES (continued)

 

  The tables below show the split of the total right of use asset and lease liability following the adoption of IFRS 16:

 

 

As at

1 January

2019
£m

Properties

 

  30.8

Plant and equipment

 

  5.3

Leases previously held under finance leases

 

11.9

Total right of use assets

 

  48.0

 

 

 

Properties

 

  32.0

Plant and equipment

 

  5.2

Leases previously held under finance leases

 

7.4

Total lease liabilities

 

  44.6

 

 

 

During the year, the application of IFRS 16 resulted in an increase in operating profit in the Consolidated Income Statement of £1.1 million in comparison to treatment under IAS 17, as operating lease payments under IAS 17 were replaced by a depreciation charge on right of use assets and operating lease payments in relation to short term and low value leases. Profit before taxation reduced by £0.4 million with the inclusion of £1.5 million of finance costs under the new standard.

The table below shows a reconciliation between profit under IAS 17 and the new standard, IFRS 16.

 

Year ended

31 December 2019

£m 

Operating lease costs under IAS 17

8.1 

(Less): Depreciation of right of use assets for leases

previously recognised as operating leases under IAS 17

(5.7)

(Less): Short term and low value lease expense under IFRS 16

(1.3)

Impact on operating profit for the year

1.1 

(Less): Finance costs associated with lease liabilities for

leases previously recognised as operating leases under IAS 17

(1.5)

Impact on profit before taxation for the year

(0.4)

 

 

23  PRINCIPAL RISKS AND UNCERTAINTIES

 

The Group operates a structured risk management process, which identifies and evaluates risks and uncertainties and reviews mitigation activity.  The Group set out in its 2018 Annual Report and Accounts the principal risks and uncertainties that could impact its performance.  These remain largely unchanged as at 31 December 2019 and are summarised below:

 

Financial Risks

Cost Inflation

Economy

Interest Rate Fluctuations

Liquidity Risk

Taxation

 

Operational Risks

Loss of a Processing Facility

Failure of Strategy

Customers

Competition

Retention and Motivation of Employees

Information Systems and Technology

Regulatory Risk

Health and Safety

Compliance and Fraud

Climate Change and Energy Costs

 

These risks and uncertainties do not comprise all of the risks that the Group may face and are not listed in any order of priority.  Additional risks and uncertainties not presently known to the Board, or deemed to be less material, may also have an adverse effect on the Group.  These include risks resulting from the UK's decision to leave the EU which could adversely affect the economic and political environment as well as affecting financial risks such as liquidity and credit.  The Board views the potential impact of Brexit as an integral part of its principal risks rather than a stand-alone risk.  However, there is still significant uncertainty about the withdrawal process and the outcome of negotiations about future arrangements between the UK and the EU and the period for which existing EU laws for member states will continue to apply to the UK.  The Board will continue to assess the risk to the business as the Brexit process evolves and will implement any appropriate actions.  Furthermore, whilst we have not as yet seen any impact on trading from the Covid-19 virus, the Board will continue to monitor the situation over the coming weeks and will seek to mitigate the risk of impact that the virus may have on our employees, customers and supply chain.

 

Full details of the Principal Risks and Uncertainties facing the Group will be included in the 2019 Annual Report and Accounts which will be made available on the Group's website (www.jsg.com) on or before 13 March 2020.

 

 

NOTES TO THE PRELIMINARY ANNOUNCEMENT (continued)

 

24  DIRECTORS' RESPONSIBILITIES STATEMENT

 

The Directors are responsible for preparing the Annual Report and Accounts in accordance with applicable law and regulation.  Having taken advice from the Audit Committee, the Board considers the Annual Report and Accounts, taken as a whole, to be fair, balanced and understandable and that it provides the information necessary for Shareholders to assess the Company's position and performance, business model and strategy.

 

The Annual Report and Accounts for the year ended 31 December 2019, which will be made available on the Group's website (www.jsg.com) on or before 13 March 2020, contains the following statement regarding responsibility for the Strategic Report, the Directors' Report (including the Corporate Governance Report), the Directors' Remuneration Report and the financial statements included within the Annual Report and Accounts.

 

Each of the Directors confirms that, to the best of their knowledge:

§ the Group financial statements, which have been prepared in accordance with IFRSs as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Group; and

§ the Strategic Report includes a fair review of the development and performance of the business and the position of the Group, together with a description of the principal risks and uncertainties that it faces.

 

In the case of each Director in office at the date the Directors' Report is approved:

§ so far as the Director is aware, there is no relevant audit information of which the Group's auditors are unaware; and

§ they have taken all the steps that they ought to have taken as a Director in order to make themselves aware of any relevant audit information and to establish that the Group's auditors are aware of that information.

 

 

25  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, Johnson House, Abbots Park, Monks Way, Preston Brook, Cheshire, WA7 3GH.  The announcement can also be accessed on the Internet at www.jsg.com

 

The Company's Annual Report will be made available on the Group's website (www.jsg.com) on or before 13 March 2020.

 

 

26  APPROVAL

 

The Preliminary Announcement was approved by the Board of Directors on 2 March 2020.

 

 

 


This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact [email protected] or visit www.rns.com.
 
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