Johnson Service Regulatory News (JSG)

29 Apr 2008 07:01

Johnson Service Group PLC29 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 Groupannounces its preliminary results for the financial year ending 31 December2007. Overview • Difficult year for the Group • John Talbot appointed interim Chief Executive Officer in December 2007 • Resilient and cash generative businesses with strong market positions and growth potential • Successful disposal of the Corporatewear division for a cash consideration of £82.5 million reduces debt • New banking facilities secured to December 2010, providing stable financial platform to move forward Financial Summary 2007 2006Revenue £406m £411m Revenue (excluding costs recharged to customers) £365m £361mOperating Loss/Profit £(38.1)m £23.7mAdjusted Operating Profit* £30.1m £34.9m(Loss)/Profit Before Tax £(52.4)m £14.5mAdjusted Profit Before Tax** £18.5m £25.7mFinal Dividend - 15.0p * Before amortisation and impairment of intangibles (excluding softwareamortisation) and exceptional items ** Before tax refers to adjusted operating profit less finance costs excludingexceptional 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 ofthe year we were focused on renegotiating terms with our banks and reviewing thefuture strategy. The main businesses continued to trade well in an increasinglydifficult economic situation despite the Group's debt position. "The disposal of the Corporatewear division completed on 28 April 2008 and theresultant reduction in debt, together with the agreement of medium term bankfacilities, mark an important initial step in restoring financial stability. "Our three continuing businesses - Textile Rental, Drycleaning and FacilitiesManagement - have strong market positions and are an excellent base on which tobuild the Group's rehabilitation as a leading services company." Enquiries: Johnson Service Group PLC Hudson SandlerJohn Talbot, interim Chief Executive Officer Michael SandlerYvonne Monaghan, Finance Director Sandrine GallienTel: 020 7796 4133 (on the day) Fran ReadTel: 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 ofthe year we were focused on renegotiating terms with our banks and reviewing thefuture strategy. The main businesses continued to trade well in an increasinglydifficult economic situation despite the Group's debt position. On 11 April 2008 we announced the proposed disposal of the Corporateweardivision, which was subsequently approved by Shareholders and completed on 28April 2008 for a cash consideration of £82.5 million. At the same time, weannounced the details of new bank facilities which provide funding for the Groupto December 2010. The Group continues to focus on providing services to both individual consumersand businesses and has a strong market position in managed property services andmarket leading positions in textile rental and drycleaning. Our strategy is tomaintain and develop these businesses. Group Results Total continuing revenue for the year reduced to £406.1 million (2006: £410.9million), while revenue, excluding costs recharged to customers, increased to£365 million (2006: £360.6 million). Continuing adjusted operating profit waslower at £30.1 million (2006: £34.9 million). Adjusted operating profit throughout this statement refers to operating profitbefore amortisation and impairment of intangibles (excluding softwareamortisation) and exceptional items. Adjusted profit before tax refers toadjusted operating profit less finance costs, excluding exceptional financecosts in relation to bank fees. Amortisation and impairment of intangibles (excluding software amortisation) of£27.2 million (2006: £5.8 million) includes £21.1 million in respect of theimpairment of goodwill. This largely comprised £13.2 million reflecting thedisposals of the Corporatewear division in March and April 2008 and £6.5 millionin respect of the Facilities Management division. Net exceptional costs for the year of £41.0 million (2006: £5.4 million)included restructuring costs of £16.7 million (2006: £8.1 million), £3.6 millionfor the accelerated depreciation of linen stocks at Stalbridge and the writedown of the ERP system of £16.7 million. The ERP system will continue to beutilised only within the Stalbridge business up to the end of 2008 and the netbook value of the software and hardware has consequently been written down toreflect this restricted use. In addition, professional fees of £2.4 millionwere incurred in connection with the bank debt restructuring process, withfurther costs to be incurred in 2008. Net finance costs in 2007 were £14.3 million comprising exceptional financecosts in relation to bank fees of £2.7 million and £11.6 million of otherfinance costs (2006: £9.2 million). The increase in other finance costsreflects higher average borrowings and interest rates during the period.Adjusted pre-tax profit on a continuing basis, excluding amortisation andimpairment of intangibles (excluding software amortisation) and exceptionalitems and exceptional finance costs, was £18.5 million (2006: £25.7 million). After the exceptional costs and amortisation and impairment of intangibles(excluding software amortisation) noted above, the pre-tax loss was £52.4million (2006: profit of £14.5 million). Adjusted fully diluted earnings pershare from continuing operations were 19.7p (2006: 32.6p) while continuingearnings per share including exceptional items and amortisation and impairmentof 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 ofsubsequent to the year end, are included within the figures reported. Finances Total net debt at the end of the year was £168.5 million (December 2006: £142.5million) following an increase in working capital during the year of £11.1million and the payment of the final 2006 dividend of £8.9 million. Oncompletion of the Corporatewear disposal, £65.0 million is being repaid to thebanks and our facilities reduced by a like amount. A favourable movement in market assumptions together with additional cashcontributions of £3.5 million during the period has further reduced the recordednet deficit after tax for all post retirement benefit obligations from £20.6million at December 2006 to £10.8 million at December 2007. This will beassisted further by the contribution of £2.1 million from the Corporateweardisposal. Dividend No dividend is being declared for 2007. Board Changes In December, we announced that John Talbot had been appointed as interim ChiefExecutive Officer and had joined the Board following the departure of CharlesSkinner, who had joined as Chief Executive in April 2007. John has over 25 years of restructuring experience. He was formerly Global Headof Arthur Andersen's Corporate Finance and Corporate Recovery practice until1999 and is currently a Senior Partner at Kroll Talbot Hughes Limited, a leadingEuropean turnaround and restructuring firm. The Board is confident that hisexperience will prove invaluable in the development and implementation of arecovery plan for the Group. During April a further arrangement has beenentered into under which John will remain with the Group until at least the endof September 2008 and discussions are underway regarding a more permanentarrangement. Yvonne Monaghan, previously the Group Financial Controller, joined the Board asFinance Director at the end of August 2007. Simon Moate resigned from the Board in July 2007 and Jim Wilkinson resigned fromhis role as Finance Director in August 2007. Admission to AIM As explained in the Circular issued to Shareholders on 11 April 2008, your Boardis 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 8May 2008. People and Culture I would like to put on record my thanks for the considerable effort by all ofour employees at every level during the recent difficult circumstances. Outlook Our three continuing businesses have strong market positions and are anexcellent base on which to build the Group's rehabilitation as a leadingservices company. The disposal of the Corporatewear division and the resultantreduction in debt, together with the agreement of medium term bank facilities,mark an important initial step in restoring financial stability. The terms ofthe banking facilities incentivise the raising of equity and the Board will beconsidering this in consultation with Shareholders. Our aim is to create a sound financial structure which will enable shareholdersto 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 arecovery plan for the Group. Our main businesses continue to perform well andnow have the ability to take advantage of market opportunities, despite havingsuffered a period of uncertainty during the renegotiation of bank facilitiesover the last six months. Since joining the Group at the end of 2007, I have visited all of the operationsand have been impressed with the quality of each of the businesses and inparticular by the operational management of each division. During the past fewmonths I have been working with the Executive Management team and our advisersto 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 Corporateweardivision, which has now been completed, and the new banking facilities agreedwith our banks, will allow us to concentrate on maximising the potential of ourthree remaining divisions; Textile Rental, Drycleaning and FacilitiesManagement. Textile Rental The Division, which comprises Johnsons Apparelmaster and Stalbridge LinenServices has increased revenue and adjusted operating profit compared to 2006.The benefit of the Texicare acquisition in January 2007 together with someorganic growth at Apparelmaster has resulted in increased revenue of 3.0% to£129.0 million and this, together with improvements at Stalbridge, has increasedadjusted operating profit by 19.8% to £10.9 million. The adjusted operatingmargin increased from 7.3% in 2006 to 8.4% in 2007. This was achieved despiteincreased energy and fuel costs and the continuing restructuring programme atour Stalbridge business. Johnsons Apparelmaster Johnsons Apparelmaster, the market-leading workwear laundering and rentalbusiness, has achieved a further year of organic growth with a 2.8% increase inits core recurring revenue despite difficult trading conditions. Revenueincreased by 7.3% to £92.6 million and adjusted operating profit by 1.7% to£11.9 million. The business performed well against its peer group and we saw the withdrawal ofseveral market participants. This has enabled us to increase our share of theworkwear market to approximately 33%. Texicare was acquired by Johnsons Apparelmaster in January 2007 for £3 million,providing a base in the North of Lancashire from which to service customers inNorthern England. Texicare added a further 120 employees and almost £4 millionof turnover to the Group along with two processing facilities, food andengineering, which have the ability to process approximately 60,000 pieces perweek. The successful integration of Texicare represents a model for futureconsolidation of this market. Our annual independent Customer Satisfaction Survey reported that the overalllevel of customer satisfaction had increased for the fourth consecutive year to81.3% in 2007 from 80% in 2006 and our satisfaction level with new customersremains at an even higher level of 84.7%. These successes are due to ourcommitment to investing in the future. We listen to customers, train anddevelop our employees and utilise technology to increase efficiency. During the year we have continued to invest in plant infrastructure to driveefficiencies in the business. We opened a 'Gold Standard' food plant in Leedsat a cost of £0.8 million in order to enhance service to large national foodproduction customers, following on from the successful commissioning of a foodplant in Basingstoke towards the end of 2006. We also moved our Head Office intoa new facility in Fulwood, near Preston. In anticipation of further increasesin energy costs, we are implementing a renewed energy efficiency programme.There will be some benefit from lower garment prices following the signing of anew supply contract with the purchaser of the former CCM garment business, whichwas sold by the Group in March 2008. We plan to further grow our market share by developing our Customer RelationshipManagement programme, enhancing our employee training programmes, furtherdeveloping our IT systems and, in the medium term, identifying suitableacquisition opportunities. We also intend to increase our return on investmentby driving efficiencies throughout the business. Despite increased energycosts, we believe that the outlook for the business is positive and it willcontinue its strong cash generation. Stalbridge Linen Services Stalbridge Linen Services supplies linen to the catering and corporatehospitality markets, a key service within Textile Rental. Stalbridge commenceda strategic realignment of its business at the beginning of 2007 by disposing ofits high volume, low margin hotel linen business in order to return to its corestrength as the major supplier to the premium markets of chefswear andrestaurant and catering linen. As part of this process, its new high volumefacility at Hinckley has, at the start of 2008, been transferred to replace anoutdated facility and meet demand at Johnsons Apparelmaster. As a consequencerevenue fell by 11.6% to £36.4 million and adjusted operating loss reduced by49% to £2.0 million. Stalbridge is working more closely with Johnsons Apparelmaster under a commondivisional head and our logistics team has re-planned the Stalbridge sites fromwhich customers are serviced to improve efficiencies and the carbon footprint ofthe business further. We are investigating further opportunities to benefit fromoperational synergies which are likely to include common IT systems. Whilst the full restructuring programme has yet to be completed, the businesshas successfully reduced its levels of loss in the second half of 2007 comparedto the first six months, and we are confident about the outlook for Stalbridge. Drycleaning Our retail drycleaning division includes Johnson Cleaners and Jeeves ofBelgravia together with Alex Reid, which supplies consumables to drycleaning andrelated businesses. Johnson Cleaners is recognised as the UK's number onedrycleaner by volume and value. It is a trusted national brand that cleans over15 million garments per annum. Total revenue of the division decreased by 4.6% to £94.6 million from £99.2million in 2006 and adjusted operating profit decreased by 34.1% to £6.0 millionfrom £9.1 million in 2006, largely due to the performance of Alex Reid. Inaddition, the increase in rent of £0.9 million paid on our drycleaning unitsfollowing the sale and leaseback of property undertaken in June 2006 was acontributory factor. Johnson Cleaners and Jeeves of Belgravia Johnson Cleaners and Jeeves of Belgravia revenue decreased by 1.2% on alike-for-like basis to £82.8 million (2006: £86.5 million) and adjustedoperating profit by 2.9% to £6.6 million. Management continue to address the impact of the decline in retail spending andthe smoking ban by tight cost control, value-based promotional activity to drivevolume and by developing a broader service offering. We are also continuing our drive to reposition the store portfolio to convenientlocations and to develop strategic partnerships with supermarkets. We openedfour new branches within Sainsbury and Waitrose stores and three Drive-ins atOrpington, Shepherds Hill (Reading) and Radcliffe (Manchester). We closed 17branches in locations that were not deemed suitable to support ongoing business. We have continued to grow our Priority Club membership, increasing our loyalcustomer base by 50,000 members in the year to some 525,000. Membership of thePriority Club requires the customer to pay an annual fee which in return offersthem additional benefits and discounts at Johnson Cleaners It is a number of years now since the "Johnsonisation" programme was completedand a large percentage of the store portfolio is in need of refurbishment. 2007saw us begin the "Evolution" programme with eight trial stores testing newfascias, point of sale and instore concepts. The trials provided the evidencerequired to commence a roll out and over the next three years it is planned that70 stores per year will be "Evolutionised". We have broadened our specialist service offering with promotions for weddingdresses, curtains, duvets and leather cleaning. Johnson Fabric RestorationServices (JFRS), our start up business, launched a new service offering firstaid for textiles and leather. JFRS is the first national fabric restorationservice to work with insurers and specialist restoration contractors to providea process that restores fabrics affected by fire and flood. In recent years, there have been comparatively low barriers to entry to thedrycleaning market, but this is changing due to more stringent environmentalregulations such as the Solvent Emissions Directive. We believe we are ideallyplaced to benefit from these changes in a market of which we have a share ofapproximately 25%. Johnson Service Group owns exclusive UK rights to theGreenEarth(R) technology which gives significant process and environmentaladvantages over traditional drycleaning methods, and we have already convertedalmost half of our stores to this technology. Our scale means that we have far greater resources and expertise than ourcompetitors to implement and build on these changes. We are developing a CarbonPolicy in conjunction with the Carbon Trust, where we will not only measure ourfootprint, but take measures to reduce it, therefore improving our "Green"credentials. Jeeves of Belgravia, our respected luxury brand and holder of the Royal Warrantfor H.R.H. the Prince of Wales, offers premium quality services to customersincluding haute-couture houses and a wide range of individuals seeking a bespokeservice. Jeeves has continued to perform well, benefiting from a clear focus onquality, people and technology. Our ongoing strategy for our Drycleaning business is to reposition our storeportfolio over the coming years so that our locations are all sited to provideoptimum convenience for our customers. We continue to work closely with our supermarket partners and have a number ofSainsbury units planned to open in 2008, alongside new Drive-in locations whichare already identified. This strategy will reposition the store portfolio inkey locations, whilst the core estate extends its range of services and workstowards 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 disappointinglyin what has been a difficult year for the drycleaning industry. However,despite a reduction in the sales of consumables, we have experienced a growth inthe sales of Firbimatic GreenEarth(R) drycleaning machines as operators adoptthis new technology. Revenue decreased to £11.8 million from £12.7 million in 2006 with an adjustedoperating loss of £0.6 million from £1.3 million profit in 2006. The business is currently profitable and we are exploring opportunities toimprove the trading performance. Facilities Management The Facilities Management division includes Johnson Facilities Management andWorkplace Engineering. Revenue for the division was 9.9% lower at £93.2 million(2006: £103.4 million) whilst revenue, excluding costs recharged to customers,was 1.9% lower at £52.1 million (2006: £53.1 million). Adjusted operatingprofit reduced by 21.3% to £5.9 million (2006: £7.5 million). Johnson Facilities Management Johnson Facilities Management (JFM) completed 2007 with a strong second halftrading performance and achieved additional fee income from the previouslyanticipated loss of a major contract that is now being undertaken in-house bythe customer. Revenue excluding costs recharged to customers increased to £40.5million (£39.0 million in 2006), while total revenue decreased to £81.6 millionfrom £89.3 million in 2006. Adjusted operating profit decreased to £5.6 millionin 2007 from £6.0 million in 2006. This was a commendable performance at a timeof considerable upheaval caused by the integration of the two businesscomponents. The business was formed by the merger of SGP, which was acquired in 2005 andspecialises in the provision of property management services to the financial,retail and leisure sectors, with Johnson Workplace Management, which is focusedprimarily on the commercial office market in both the public and privatesectors. SGP has grown rapidly and profitably since its formation in 2000 andit continues to attract new customers at an impressive rate. Itscustomer-facing strengths are well complemented by the sound operating skills ofWorkplace Management. The integration of these businesses has been completedduring 2007. These businesses provide essential services to major British corporations andinstitutions. They have strong positions in markets with high barriers toentry, excellent earnings visibility and represent an exciting platform forgrowth. They provide a unique service offering and strength in the retailmarket, of which we have a 22% share of our chosen market. JFM has already won and mobilised two small contracts during 2008 and is engagedin on-going discussions with a number of blue chip prospective customers. Our strategy is to continue to build our market leading property servicebusiness by focusing on our core capabilities of IT, procurement and managementto make significant improvements in underlying organic growth and profits. Thiswill be achieved by targeting growth into higher margin service lines and bybecoming the dominant player in the provision of retail maintenance, retailrating and service charge activities. For 2008, the service charge and agency businesses have been considerablystrengthened with leading industry expertise brought into JFM, and earlyindications are for a growth year in this business activity. Workplace Engineering Workplace Engineering, which provides electrical, engineering and fit-outservices, had revenue of £11.6 million (2006: £14.1 million) and adjustedoperating profit of £0.5 million (2006: £1.3 million). The business wasimpacted by the loss of a major Facilities Management contract referred to abovebut its management has succeeded in refocusing the business and winning newcontracts. Corporatewear The sale of the Corporatewear division, the leading UK supplier of clothing forpeople at work, was completed on 28 April 2008 for cash consideration oncompletion of £82.5 million. The Corporatewear division had also historically included CCM which suppliedworkwear garments to the rental business of Johnsons Apparelmaster and to thirdparty customers. One of CCM's major external contracts was lost towards the endof 2007 and the balance of this workwear operation was reorganised and thensold. The sale of CCM was announced and completed in March 2008, for an initialcash consideration of £2.6 million. In 2007, the Division saw increased revenue and adjusted operating profitcompared to 2006. Strong sales in the second half of the year resulted in anincrease in revenue of 7.5% to £89.3 million and an increase in adjustedoperating profit by 4.9% to £12.9 million. This included a contribution of £2.2million from CCM. During 2007 the integration plan for the support functions of the divisioncontinued. Design, technical and sourcing were consolidated centrally whilstmaintaining the individual market positions of our six business brands. WessexTextiles, specialising in ambulance and paramedic clothing, was integrated intoDimensions Corporatewear with significant cost savings. During the year, the growth of the Division was accelerated by the winning ofthe UK's largest ever outsourced Corporate Clothing contract, worthapproximately £8 million per annum. The Future I see the agreement of bank facilities and the reduction in our borrowing asbeing key steps in the rehabilitation of the Group. Our businesses are strongand well managed and our focus will be on incentivising and motivatingmanagement, allowing them to focus on building our businesses without thedistractions that the problems of the last 12 months have caused. We expect toproduce a satisfactory result in 2008. John Talbot Chief Executive Officer JOHNSON SERVICE GROUP PLCCONSOLIDATED INCOME STATEMENT Year ended Year ended 31 December 31 December 2007 2006Note £m £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 (excludingsoftware 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 £m £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 2006Note £m £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 2006Note £m £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 inaccordance with International Financial Reporting Standards (IFRS) as endorsedby the European Union issued by the International Accounting Standards Board(IASB), with the Interpretations issued by the International Financial ReportingInterpretations Committee (IFRIC) of the IASB that are effective as of thebalance sheet date and with those parts of the Companies Act 1985 applicable tocompanies reporting under IFRS. Other than as outlined below, the financial information has been prepared usingaccounting 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 toIAS 1, 'Presentation of financial statements - Capital disclosures', introducesnew disclosures relating to financial instruments and does not have any impacton the classification and valuation of the Group's financial instruments, or thedisclosures relating to taxation and trade and other payables. IFRIC 8, 'Scope of IFRS 2', requires consideration of transactions involving theissuance of equity instruments, where the identifiable consideration received isless than the fair value of the equity instruments issued in order to establishwhether or not they fall within the scope of IFRS 2. This standard does nothave any impact on the Group's financial statements. IFRIC 10, 'Interim financial reporting and impairment', prohibits the impairmentlosses recognised in an interim period on goodwill and investments in equityinstruments and in financial assets carried at cost to be reversed at asubsequent balance sheet date. This standard does not have any impact on theGroup's financial statements. (b) Interpretation early adopted by the Group IFRIC 11, 'IFRS 2 - Group and treasury share transactions', was early adopted in2007. IFRIC 11 provides guidance on whether share-based transactions involvingtreasury shares or involving Group entities (for example, options over aparent's shares) should be accounted for as equity settled or cash-settledshare-based payment transactions in the stand-alone accounts of the parent andGroup companies. This interpretation does not have an impact on the Group'sfinancial statements. 2. Segment Information - Analysis of Revenue, Operating ProfitBefore Exceptional Items and Intangibles Amortisation and Impairment (excludingsoftware 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 at31 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, nogeographical segments are presented within this announcement. Business segments The Group comprises the following main business segments: • Textile rental services - market leader in the UK in the field ofworkwear rental and laundering, and in linen for the premium hotel, catering andcorporate hospitality markets; • Corporatewear - offering a comprehensive range of workwear andworkplace clothing; • Drycleaning - the nation's largest drycleaner, with over 530 storesnationwide offering a range of drycleaning, laundry and ironing services, carpetcleaning, upholstery cleaning, wedding dress cleaning and suede & leathercleaning and the supply of drycleaning consumables; and • Facilities management - delivering building, facilities and propertymanagement services to many leading public, commercial and retail organisationsthroughout the UK. Year ended 31 December 2007 Textile Corporatewear Drycleaning Facilities Unallocated Total Rental Management £m £m £m £m £m £mREVENUERevenue 129.0 100.1 94.6 94.4 - 418.1Inter-segment revenue - (10.8) - (1.2) - (12.0) 129.0 89.3 94.6 93.2 - 406.1REVENUE EXCLUDING COSTS RECHARGED TOCUSTOMERSRevenue 129.0 100.1 94.6 53.3 - 377.0Inter-segment revenue - (10.8) - (1.2) - (12.0) 129.0 89.3 94.6 52.1 - 365.0 RESULTOperating profit before intangibles 10.9 12.9 6.0 5.9 (5.6) 30.1amortisation and impairment(excluding software amortisation)and exceptional itemsAmortisation and impairment of (1.3) (15.9) (1.4) (8.6) - (27.2)intangible assets (excludingsoftware 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 1.1Profit 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 £m £m £m £m £m £mREVENUERevenue 125.2 95.4 99.2 104.6 - 424.4Inter-segment revenue - (12.3) - (1.2) - (13.5)Revenue - Continuing 125.2 83.1 99.2 103.4 - 410.9Revenue - Discontinued 8.0 - - - - 8.0 133.2 83.1 99.2 103.4 - 418.9REVENUE EXCLUDING COSTS RECHARGEDTO CUSTOMERSRevenue 125.2 95.4 99.2 54.3 - 374.1Inter-segment revenue - (12.3) - (1.2) - (13.5)Revenue excluding costs recharged 125.2 83.1 99.2 53.1 - 360.6to customers - ContinuingRevenue - Discontinued 8.0 - - - - 8.0 133.2 83.1 99.2 53.1 - 368.6 RESULTOperating profit before intangibles 9.1 12.3 9.1 7.5 (3.1) 34.9amortisation (excluding softwareamortisation) and exceptional itemsAmortisation 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 0.8Profit before taxation 14.5Taxation (1.1) Profit for the period - Continuing 13.4Discontinued operations - Textile (10.9)rental services Profit for the year 2.5 Revenue from continuing operations originates in the United Kingdom. There is nomaterial difference between revenue by origin and by destination. Facilities management revenue comprises fees receivable and costs recharged tocustomers where the relationship with the supplier of services is that ofprincipal. The element of revenue which comprises supplier costs recharged tocustomers has been shown separately on the income statement to aidinterpretation of the business. 3. Exceptional Items Year ended Year ended 31 December 2007 31 December 2006 £m £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 relateto the write-off of fixed assets (£6.8 million) associated with the Hinckleyprocessing facility, originally intended for use by Stalbridge Linen Servicesthat will not be utilised going forward. The site is currently being modifiedand will be occupied by Johnsons Apparelmaster from the end of 2008 onwards,saving the significant investment which would have been required for a newJohnsons Apparelmaster facility. Other costs within the division relate toredundancies and the further restructuring of the division. Restructuring costswithin the Corporatewear and Facilities Management divisions are in respect ofthe integration of the acquisitions made in the previous three years. Grouprestructuring costs relate to the termination costs of two Executive Directorsand the redundancy of other Group staff. Other than redundancy costs,restructuring costs include the decentralisation of the Group IT department andthe write-off of associated IT assets. Professional fees associated with the bank restructuring process include thecost of an Independent Business Review, legal fees and other advisory fees. Onerous lease and environmental costs represent a reassessment of expectedfuture costs arising from significant changes in circumstances on specificproperties. The write-off of rental stock relates to accelerated depreciation in respect ofnon-recoverable linen at Stalbridge Linen Services. The ERP system will only be utilised in Stalbridge Linen Services in 2008 andthe net book value of the software and hardware has been written-down by £16.3million and £0.4 million respectively to reflect this restricted use.Stalbridge Linen Services will move onto a new accounting system during 2008 andtherefore the remaining net book value will be amortised over the next twelvemonths. Property disposals relate to the sale of four surplus Drycleaning properties.In addition an overage provision was received in respect of a 2005 freeholdproperty disposal. 4. Adjusted Profit Before and After Taxation The reconciliation of profit before taxation from continuing operations andadjusted profit before taxation from continuing operations is as follows: Year ended Year ended 31 December 31 December 2007 2006 £m £m (Loss) / profit before taxation (52.4) 14.5Intangibles amortisation and impairment (excluding software amortisation) 27.2 5.8Restructuring and other costs 43.1 20.4Profit on disposal of property (2.1) (15.0)Exceptional finance costs in respect of bank fees 2.7 -Adjusted profit before taxation 18.5 25.7Taxation (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 £m £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)accountingInterest 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 0.6Other finance income 0.3 0.2Finance income 1.1 0.8Net finance expense (14.3) (9.2) 6. Taxation Year ended Year ended 31 December 31 December 2007 2006 £m £mCURRENT TAXUK corporation tax charge for the year - 5.3Adjustment in relation to previous years 0.5 (1.5)Current tax charge for the year 0.5 3.8 DEFERRED TAXOrigination 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 financecosts, in the current year has reduced the charge for taxation by £12.9 million(2006: £4.4 million). Tax relief on intangibles amortisation and impairment(excluding software amortisation) has reduced the charge for taxation by £1.8million (2006: £2.7 million). The tax charge on the property disposals hasincreased the charge for taxation by £0.4 million (2006: £1.9 million). A number of changes to the UK Corporation Tax system were announced as part ofthe March 2007 Budget Statement. Certain of these changes were substantivelyenacted in the 2007 Finance Act on 26 June 2007. The impact of these changeshas been recognised in these financial statements. Certain other changes are expected to be enacted in the 2008 Finance Act. Theimpact of these changes will be recognised in the period in which the 2008Finance Act becomes substantively enacted, which is expected to be in the yearending 31 December 2008. Changes to the Industrial Building Allowances regime will result in thereduction of deferred tax liabilities. A reduction of approximately £2.0million is expected to be recognised as a credit to the Income Statement for theyear ending 31 December 2008. 7. Dividends Year ended Year ended 31 December 31 December 2006 2007Ordinary dividends paid and proposedInterim dividend paid - 4.6pFinal dividend paid - 15.0p On 9 July 2007 a final dividend of 15.0p in respect of the year ended 31December 2006 was paid on the Ordinary shares, utilising £8.9 million ofShareholders' funds. The Trustee of the ESOP has waived the entitlement toreceive dividends on the Ordinary shares held by the Trust. The Directors do not propose the payment of a dividend in respect of the yearended 31 December 2007. 8. Earnings Per Share Year ended Year ended 31 December 2007 31 December 2006 £m £m Profit for the financial year attributable to Ordinary Shareholders (44.9) 13.4from continuing operationsLoss for the financial year attributable to Ordinary Shareholders - (10.9)from discontinued operationsIntangibles amortisation and impairment, excluding software amortisation (net 25.4 3.1of taxation)Exceptional costs from continuing operations (net of taxation) 29.3 2.9Exceptional costs from discontinued operations (net of taxation) - 9.2Exceptional 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 58,843,450Potentially dilutive options 56,055 709,375Fully diluted number of Ordinary shares 59,351,969 59,552,825 Basic earnings per shareFrom continuing operations (75.8p) 22.8pFrom discontinued operations - (18.6p)From continuing and discontinued operations (75.8p) 4.2pAdjustment for intangibles amortisation and impairment 42.9p 5.2p(excluding software amortisation) (continuing operations)Adjustment for exceptional costs (continuing operations) 49.4p 4.9pAdjustment for exceptional costs (discontinued operations) - 15.8pAdjustment for exceptional finance costs in respect of bank fees 3.2p -Adjusted basic earnings per share from continuing operations 19.7p 32.9pAdjusted 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 shareFrom continuing operations (75.8p) 22.6pFrom discontinued operations - (18.4p)From continuing and discontinued operations (75.8p) 4.2pAdjustment for intangibles amortisation and impairment 42.9p 5.1p(excluding software amortisation) (continuing operations)Adjustment for exceptional costs (continuing operations) 49.4p 4.9pAdjustment for exceptional costs (discontinued operations) - 15.6pAdjustment for exceptional finance costs in respect of bank fees 3.2p -Adjusted diluted earnings per share from continuing operations 19.7p 32.6pAdjusted 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 ofshares in issue during the year, excluding those held by the ESOP, based on theprofit for the period attributable to Ordinary Shareholders. Adjusted earnings per share figures are given to exclude the effects ofintangibles amortisation and impairment (excluding software amortisation) andexceptional items, including exceptional finance costs, all net of taxation, andare considered to show the underlying results of the Group. For diluted earnings per share, the weighted average number of Ordinary sharesin issue is adjusted to assume conversion of all potentially dilutive Ordinaryshares. The Company has potentially dilutive Ordinary shares arising from shareoptions granted to employees where the exercise price is less than the averagemarket price of the Company's Ordinary shares during the year. Potential Ordinary shares are dilutive at the profit from continuing operationslevel when their conversion to Ordinary shares would decrease earnings per shareor increase loss per share from continuing operations. For the year ending 31stDecember 2007, potential Ordinary shares are antidilutive, as their inclusion inthe diluted earnings per share calculation would reduce the loss from continuingoperations, and hence have been excluded. For the year ending 31 December 2006,potential Ordinary shares have been treated as dilutive for the purpose ofdiluted earnings per share from continuing and discontinued operations, as theirinclusion decreases earnings per share from continuing operations. Other than for the issue of warrants to the Company's bankers on the signing ofthe new bank facilities, there were no events occurring after the balance sheetdate that would have changed significantly the number of ordinary shares orpotential ordinary shares outstanding at the balance sheet date, if thosetransactions had occurred before the end of the reporting period. 9. Retirement Benefit Obligations The Group has applied the requirements of IAS 19 Employee Benefits (revisedDecember 2004) to its employee pension schemes and post-retirement healthcarebenefits. As part of the Group's objective to reduce its overall pension liability,additional contributions of £2.9 million and £0.6 million were paid to theJohnson Group Staff Pension Scheme and the WML Final Salary Pension Schemerespectively, during the period to 31 December 2007. Following discussions with the Group's appointed actuary it has been identifiedthat an actuarial gain of £10.4 million should be recognised in the year to 31December 2007. This is as a result of the scheme assets and liabilitiesperforming differently to previous assumptions and changes to the assumptionsused in calculating scheme liabilities. The gross retirement benefit liability and associated deferred tax assetthereon, together with the net liability is shown below: Year ended Year ended 31 December 2007 31 December 2006 £m £m Gross retirement benefit liability (15.8) (30.7)Deferred tax asset thereon 5.0 10.1Net liability (10.8) (20.6) 10. Acquisitions Acquisitions Consideration paid and net assets acquired The material businesses acquired during the period are shown below. Unlessotherwise stated, 100% of either the voting equity instruments or the trade andnet assets of each business was acquired. Consideration Net Separately Goodwill identified and costs assets intangible acquired assets £m £m £m £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) £mConsideration has been satisfied by:Cash consideration payable 3.1Professional fees and other costs 0.1Acquisitions 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 adjustmentsTexicare assets adjustments value at acquired date of acquisition £m £m £m £m Tangible fixed assets - property, plant and equipment 0.4 0.1 - 0.5Tangible fixed assets - rental items 1.2 (0.2) - 1.0Inventories 0.1 - - 0.1Trade and other receivables 0.8 - (0.2) 0.6Cash and cash equivalents 0.1 - - 0.1Creditors 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 increasedknowledge of assets and liabilities resulting from a longer period of ownership. Analysis of net cash flow in respect of acquisitions £m Cash consideration and costs paid 3.2Deferred consideration paid on acquisitions in prior years 4.0 7.2Cash 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 amixture of industrial and food garment streams. In the year to 31 December 2007, Texicare contributed revenue of £3.9 millionand operating profit before intangibles amortisation and impairment (excludingsoftware) and exceptional items of £0.5 million to the Group consolidated lossfor the period. 11. Reconciliation Of Net Cash Inflow To Movement In Net Debt Year ended Year ended 31 December 2007 31 December 2006 £m £m Increase in cash in year 5.0 3.8Cash (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 £m Changes 31 December 2007 2007 £m £m £m Cash and cash equivalents 11.3 5.0 - 16.3Debt 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 tobank loans and the reclassification of debt after more than one year to withinone year. 13. Abridged Accounts The financial information set out above does not constitute the Company'sstatutory accounts for the years ended 31 December 2007 or 31 December 2006within the meaning of Section 240 of the Companies Act 1985, but is derived fromthose 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 GeneralMeeting. The Auditors have reported on those accounts; their report wasunqualified and did not contain a statement under s237(2) or (3) of theCompanies Act 1985. 14. Preliminary Announcement A copy of this Preliminary Announcement is available on request to allShareholders by post from The Company Secretary, Johnson Service Group PLC, 4Harley Street, London W1G 9PB. The Announcement can also be accessed on theInternet 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 April2008. 16. Events After The Balance Sheet Date On the 19 March 2008 the Group announced the disposal of certain assetsincluding stock, certain supply contracts and associated goodwill relating tothe Group's CCM garment sourcing business. The consideration was approximately£2.6 million in cash with up to a further £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 anamount of £82.5 million (subject to adjustment post completion). The netproceeds, estimated at £64.6 million together with an amount of approximately£0.4 million from the Company's current resources is being used to repay thebridge bank facility of £65.0 million. The disposal was approved by Shareholdersat the EGM held on 28 April 2008. b) New bank facilities have been agreed with the Group's existing bankgroup comprising amortising and non amortising term loans with a final repaymentdate of 31 December 2010. The bridge facility included within the facilitieswill be repaid from the disposal proceeds from the sale of Corporatewear. c) On 11 April 2008, the Group issued to its existing lender banks, inconnection with the renegotiation of the Group's debt facilities, warrants over2,957,636 shares, representing approximately 4.7% of the fully diluted sharecapital of the Group as at that date. The warrants are exercisable from 11April 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 exchangelisting from the Official List to AIM and a resolution to approve this is thesubject of an EGM on 8 May 2008. 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