Last checked at 9 Sep 2008 07:00
9 September 2008
Johnson Service Group PLC
Interim results for the half year to 30 June 2008
Johnson Service Group PLC, the textile services and facilities management Group announces its interim results for the half year to 30 June 2008.
Summary
Significant progress since John Talbot's appointment in December 2007
Proforma net debt of £78.5 million at September 2008, reduced from £168.5 million at December 2007
Adjusted operating profit increased to £7.7 million (June 2007: £7.5 million)
Three main divisional heads appointed to the Board
Three market leading profitable divisions all well placed for the future
Financial Summary (Continuing)
| June 2008 | June 2007 | |
| Revenue | £130.1m | £158.9m |
| Revenue (excluding costs recharged to customers) | £124.9m | £136.3m |
| Operating Profit / (Loss) | £0.5m | £(11.8)m |
| Adjusted Operating Profit* | £7.7m | £7.5m |
| Exceptional Costs | £(5.6)m | £(17.7)m |
| (Loss) Before Tax | £(7.5)m | £(17.0)m |
| Adjusted Profit Before Tax* | £0.4m | £2.3m |
* Before intangibles amortisation and impairment (excluding software amortisation) and exceptional items.
John Talbot, Executive Chairman of Johnson Service Group, commented:
I believe that the Group is now well placed with strong, incentivised management, market leading, profitable divisions and significantly reduced debt.
We are now well positioned to seize commercial opportunities but unfortunately we are not immune to weaknesses in the UK economy, which continues to be difficult.
The Textile Rental division has, to date, continued to attract new business, although latterly at a slower rate. There is considerable uncertainty about the future price of energy and fuel but we shall take steps to mitigate the impact wherever possible.
SGP, in the Facilities Management division, has a strong new business pipeline of enquiries, particularly for its proprietary help desk services, for which demand seems to be increasing as the retail environment gets tougher but in this climate, project income will continue to be under pressure, at least in the short term.
Drycleaning is being affected by the difficult conditions on the high street but we continue to believe that the second half should follow the usual pattern and be stronger than the first.
Overall, despite the economic climate, the Board expects the result for the current financial year to be satisfactory.
For further information, please contact:
| Johnson Service Group PLC | Hudson Sandler |
| John Talbot, Executive Chairman | Michael Sandler |
| Yvonne Monaghan, Finance Director | Wendy Baker |
| Tel: 020 7796 4133 (on the day) | Fran Read |
| Tel: 01928 704600 (thereafter) | Telephone: 020 7796 4133 |
www.johnsonplc.com
Chairman's Statement
I have, as of yesterday, taken up the position of Executive Chairman of the Group, having originally joined the Group as Chief Executive in December 2007, and I am delighted to report on the significant progress made so far in 2008 including the completion of the disposal of the Corporatewear division, the raising of new equity and the signing of new medium term bank facilities.
The three continuing divisions are market leading businesses in the areas in which they operate and are each led by strong and motivated management teams.
Group Results
Total continuing revenue in the six months to 30 June 2008 decreased by 18.1% to £130.1 million (2007: £158.9 million), while continuing underlying revenue, excluding costs recharged to customers, reduced by 8.4% to £124.9 million (2007: £136.3 million). The reduction in revenue is largely attributable to the planned withdrawal from the low margin linen rental activities within the Stalbridge business and the previously anticipated and reported loss of a major contract in the Facilities Management division. Continuing adjusted operating profit, was 2.7% higher at £7.7 million (2007: £7.5 million).
Adjusted operating profit throughout this statement refers to operating profit before amortisation and impairment of intangibles (excluding software amortisation) and exceptional items. Adjusted profit before tax refers to adjusted operating profit less finance costs, excluding exceptional finance costs in relation to bank facility fees.
Net exceptional costs from continuing operations for the half year amounting to £5.6 million (2007: £17.7 million) comprised a profit on the disposal of properties of £0.8 million (2007: £2.6 million), a release of excess provision for an uninsured loss of £1.0 million, restructuring and other costs of £1.4 million (2007: £20.3 million) and £6.0 million of professional and advisory costs incurred in connection with the bank restructuring process.
Net finance costs were £8.0 million (2007: £5.2 million) of which £0.7 million related to exceptional finance costs arising from the write off of bank fees on the part of the new bank facility which was repaid during the period. The increased charge reflected higher average borrowings and interest rates during the period.
Adjusted pre-tax profit on a continuing basis was £0.4 million (2007: £2.3 million).
After the exceptional costs and amortisation of intangibles (excluding software) of £7.9 million (2007: £19.3 million) the continuing pre-tax loss was £7.5 million (2007: £17.0 million). Adjusted fully diluted earnings per share from continuing operations were 0.4p (2007: 2.5p) while continuing earnings including exceptional items and amortisation of software were a loss of 8.8p (2007: loss 19.9p).
Finances
Total debt at the end of the first half was significantly reduced to £118.1 million (December 2007; £168.5 million) following the net receipt of £67.1 million from the sale of the Corporatewear and garment sourcing businesses. Subsequent to the period to 30 June 2008, debt has fallen further due to the net receipt of £27.8 million from the Placing of shares, an additional £4.6 million post completion adjustment from the sale of Corporatewear and £7.2 million from the net proceeds of the Open Offer. Taking 30 June net debt and applying the above receipts, the proforma net debt would reduce to £78.5 million.
As at 9 September 2008, the funds raised by the Placing and Open Offer have reduced bank debt so that only £20.0 million of debt will be drawn under the most expensive part of the facility incurring an interest cost of 4% over LIBOR. The remaining bank debt incurs interest at 2.5% over LIBOR.
Disposal of Corporatewear
The disposal of Corporatewear was completed on 28 April 2008 for a total net consideration, on a debt free, cash free basis, of £84.4 million. The pre-tax gain on the disposal of £11.9 million, less the potential tax arising on the disposal in the sum of £13.2 million, together with the profit after tax arising from the business in the four months prior to disposal, has been shown as a loss on discontinued operations.
As disclosed in the Circular to Shareholders relating to the disposal, it remains unclear whether this potential de-grouping tax charge will crystallise but in view of the uncertainty, a provision of £13.2 million has been made and that amount placed in escrow, pending resolution. The net proceeds from the disposal were principally used to repay debt.
Issue of Equity
As mentioned above, following the period end the Company has issued 189,828,824 Ordinary shares (150,000,000 pursuant to the Placing and 39,828,824 pursuant to the Open Offer) to raise a net amount of approximately £35.0 million after expenses. This has primarily been utilised in reducing the Group's most expensive bank debt. As explained in both the Placing Circular and the Prospectus, the share issue has increased net assets by the same amount.
Dividend
As previously advised, the Board is not intending to recommend a dividend payment in respect of the 2008 financial year. Subject, inter alia, to having sufficient distributable reserves, it is currently envisaged that the Company will commence the payment of interim and final dividends for the year ending 31 December 2009.
Principal Risks and Uncertainties
The Principal Risks and Uncertainties facing the Group were detailed on pages 12 and 13 of the 2007 Annual Report under the headings Financial, Operating and Other and also on pages 10 to 16 of the Company's Prospectus to Shareholders published on 6 August 2008. These remain unchanged.
DIVISIONAL PERFORMANCE
Textile Rental
Revenue of the division, which comprises Johnsons Apparelmaster and Stalbridge Linen Services, reduced by 5.6% to £60.8 million (2007: £64.4 million) as a result of the previously announced strategy of disposing of high volume, low value hotel linen contracts. As a result of the disposal of Corporatewear the intra-Group trading results have been reclassified from the Corporatewear segment to Textile Rental for 2007. After this adjustment, adjusted operating profit increased by 27.4% to £6.5 million (2007: £5.1 million).
Johnsons Apparelmaster, the market-leading workwear laundering and rental business, achieved revenue growth of 1.9% from £46.3 million to £47.2 million despite challenging market conditions. Adjusted operating profit has increased by 13.1% from £6.1 million to £6.9 million largely reflecting a reduction in administrative overheads and having adjusted for the intra-Group trading referred to above.
New contract installations grew by 3% as Apparelmaster continues to develop its customer relationship programmes and despite the early signs of the general economic pressures within the UK economy, customer retention remained consistent with the previous year.
The conversion of the former Stalbridge linen processing plant in the Midlands to a high specification workwear plant is proceeding to plan and it will be in production before the end of this year. This plant replaces the old Midlands plant which will close when production has been transferred and it will provide some 25% additional production capacity with only a marginal increase in overhead.
Our commitment to the continuing improvement in quality is demonstrated by being the first UK textile rental company to register and comply with BS EN 140654, a dedicated European Standard for Risk Analysis and Bio-contamination Control, which specifically relates to standards for the processing of food industry clothing. Our commitment to continued improvements in customer service is also strengthened by our registration with the Government's skills pledge initiative and in awarding NVQs to our core employees.
Stalbridge Linen Services, which supplies linen to the premium hotel, catering and corporate hospitality markets, has continued to make progress towards returning to profitability. Although revenue reduced by 24.9% from £18.1 million to £13.6 million as part of the planned reduction of low price linen processing, the adjusted operating loss for the half year improved by 50% from a loss of £1.6 million in 2007 to £0.8 million in 2008 despite experiencing higher energy and fuel costs.
This business is seasonal, historically enjoying better trading in the second half of the year. The cessation of processing in the Midlands plant referred to above was completed in February, thereby reducing the ongoing cost base. Improved production efficiencies have been implemented and further savings will be achieved as the back office of the business is further combined with Johnsons Apparelmaster.
Facilities Management
The Facilities Management division comprises SGP Property & Facilities Management (SGP) and Workplace Engineering. Revenue for the division was 51.6% lower at £23.2 million (2007: £47.9 million) whilst revenue excluding costs recharged to customers was 28.9% lower at £18.0 million (2007: £25.3 million). Adjusted operating profit reduced by 32% to £1.7 million (2007: £2.5 million).
SGP, formerly Johnson Facilities Management, which provides property management services to the retail, financial and commercial office markets, has produced an adjusted operating profit result in line with expectations. As reported in the full year results for 2007, a major customer took its property management in house with effect from the beginning of 2008 and the reduction in revenue, both including and excluding costs recharged to customers, and adjusted operating profit largely results from this.
Revenue excluding costs recharged to customers reduced from £18.6 million to £14.3 million while total revenue, including recharges, decreased to £19.5 million (2007: £41.2 million). Adjusted operating profit reduced by 22.7% to £1.7 million (2007: £2.2 million). Encouragingly, however, the operating profit would have shown an increase of 42% if the contract referred to had been excluded from the comparative figures.
The business has now been re-branded under the SGP banner, encompassing four main revenue streams, and is continuing to win significant new customers, particularly in the retail sector where it serves over 22% of the total number of the large high street retailers with chains of 100 outlets or more. During August we have signed a contract with major restaurant chain with some 300 locations to provide help desk services and the benefit of this, and other contracts which are nearing signature, will begin to come through in 2009. Our more conventional FM contracts are performing well with additional add on services being provided and six new contracts have been signed this year.
The projects area of the business is experiencing challenging conditions as many of our customers in the retail sector have delayed or cancelled capital projects that are managed by our staff. Revenue from projects is down 66% in the first half and this is likely to continue until the retail sector has confidence to resume investing in its estate.
Workplace Engineering, which provides electrical engineering and fit- out services reported revenue of £3.7 million (2007: £6.7 million), breaking even at the adjusted operating profit level compared to £0.4 million in 2007. The business has been affected by the loss of the major contract referred to above which was the major contributor to revenue and profit in the first half of 2007. A number of new contracts have been signed during the period but these will largely benefit the second half.
Drycleaning
The Drycleaning division comprises Johnson Cleaners, Jeeves of Belgravia and Alex Reid. Revenue for the division was slightly lower at £46.1 million (2007: £46.6 million) and adjusted operating profit reduced by 28% to £1.8 million (2007: £2.5 million).
Johnson Cleaners and Jeeves of Belgravia
Johnson Cleaners revenue decreased by 3.1% on a like for like basis and Jeeves of Belgravia revenue increased by 10.0% on a like for like basis. Combined revenue was £39.5 million (2007: £40.9 million) with adjusted operating profit decreasing by 29.6% to £1.9 million (2007: £2.7 million). The number of stores fell from 537 stores at the end of December 2007 to 528 stores at the end of June following a targeted reduction of under performing stores. Four new supermarket locations were opened as part of the ongoing strategy of re-locating to more convenient locations and are trading to expectation. A further six new supermarkets and drive-in locations are planned for the second half.
Additional services continue to be added to existing stores including ironing in all stores, laundry under the banner "Washed4U" in 215 stores and an Executive Service in 50 stores by the end of June. The JFRS business, which offers post flood and fire fabric restoration services, is achieving encouraging results and is to open an additional processing facility in Glasgow in the second half.
The smoking ban has now been effective for over 12 months and, as previously commented, this has impacted drycleaning volumes. However as the second half of 2008 will be comparing to volumes in 2007 after the ban, like for like sales are expected to be more favourable. The trading conditions on the high street remain difficult and some cost pressures on energy, fuel and oil related consumables are anticipated in the second half although initiatives on additional services and carbon emissions will offset some of this impact. Some 243 stores have now been converted to GreenEarth® processing, the more environmentally friendly drycleaning process.
Jeeves of Belgravia is continuing to build on its central London presence through expansion of its home delivery service.
Alex Reid
Alex Reid, our specialist drycleaning and supplies business, has continued to experience strong competition, in a difficult market.
Revenue increased by 15.8% to £6.6 million (2007: £5.7 million), breaking even at the adjusted operating profit level compared to a loss of £0.1 million in 2007. Potential synergies with regard to distribution costs and plant utilisation are being reviewed with all Group companies in order to improve trading performance.
Pension Deficit
Net deficit after tax for all post retirement benefit obligations increased from £11.0 million at December 2007 to £14.7 million at June 2008, despite additional cash contributions of £3.9 million during the period (including the £2.1 million payment from the Corporatewear disposal). This increase is as a result of an adverse movement in market assumptions and a significant fall in the value of equity investments, due to current market conditions. This deficit will continue to be impacted by movements in assumptions and actual discount rates, both of which are outside the control of the Group. Actuarial valuations of all three defined benefit schemes have now been completed and the additional cash contributions to be paid into the Schemes in the second half of 2008 has been agreed as £0.9 million with less than £2.0 million to be paid in 2009. I will be assuming the Chairmanship of the main scheme's pension committee and I intend to work closely with the Trustees of all of our schemes to ensure that the Group's interests are protected. Amongst other issues we shall be exploring cost efficient ways of reducing the level of past service liabilities in the Schemes whilst, at the same time, protecting members' interests.
Board
I am pleased to announce that the Managing Director of each of the three main divisions, Christopher Sander, Kevin Elliott and Paul Ogle, have today been appointed to the Board. As previously announced Simon Sherrard stepped down as Chairman and left the Board on 8 September 2008 and I would like to thank him for his contribution to the Group over the past eight and a half years.
People
I would like to thank employees at all levels throughout the Group for the dedication and considerable efforts over the last nine months during what has been a difficult time.
Outlook
I believe that the Group is now well placed with strong, incentivised management, market leading, profitable divisions and significantly reduced debt.
We are now well positioned to seize commercial opportunities but unfortunately we are not immune to weaknesses in the UK economy, which continues to be difficult.
The Textile Rental division has, to date, continued to attract new business, although latterly at a slower rate. There is considerable uncertainty about the future price of energy and fuel but we shall take steps to mitigate the impact wherever possible.
SGP has a strong new business pipeline of enquiries, particularly for its proprietary help desk services, for which demand seems to be increasing as the retail environment gets tougher but in this climate, project income and property agency will continue to be under pressure, at least in the short term.
Drycleaning is being affected by the difficult conditions on the high street but we continue to believe that the second half should follow the usual pattern and be stronger than the first.
Overall, despite the economic climate, the Board expects the result for the current financial year to be satisfactory.
John Talbot
Executive Chairman
Responsibility Statement
The consolidated interim financial statements comply with the Disclosure and Transparency Rules ('DTR') of the United Kingdom's Financial Services Authority in respect of the requirement to produce a half-yearly financial report. The interim report is the responsibility of, and has been approved by, the Directors.
The Directors confirm that to the best of their knowledge:
this financial information has been prepared in accordance with IAS 34 as adopted by the European Union;
this interim management report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first half and description of principal risks and uncertainties for the remaining half of the year); and
this interim management report includes a fair review of the information required by DTR 4.2.8R (disclosure of related party transactions and changes therein).
The Directors of Johnson Service Group are listed in the Johnson Service Group Annual Report for 2007, with the following changes since 31st December 2007:
Simon Sherrard stepped down as Non-Executive Chairman on 8th September 2008;
John Talbot (previously Interim Chief Executive Officer) was appointed as Executive Chairman on 8th September 2008; and
Christopher Sander, Kevin Elliott and Paul Ogle, the Managing Director of each of the three main divisions, were appointed to the Board on 9th September 2008.
A list of current Directors is available on the Johnson Service Group website: www.johnsonplc.com
By order of the Board
Y M Monaghan
Finance Director
9th September 2008
On behalf of the Board
Consolidated Income Statement
| Half year to 30th June 2008 | Half year to 30th June 2007 | Year ended 31st December 2007 | ||
| Note | £m | £m | £m | |
| CONTINUING OPERATIONS: | ||||
| 2 | REVENUE | 130.1 | 158.9 | 316.8 |
| Costs recharged to customers | (5.2) | (22.6) | (41.1) | |
| Revenue excluding costs recharged to customers | 124.9 | 136.3 | 275.7 | |
| 2 | OPERATING PROFIT / (LOSS) | 0.5 | (11.8) | (33.1) |
| OPERATING PROFIT BEFORE INTANGIBLES AMORTISATION AND IMPAIRMENT (EXCLUDING SOFTWARE AMORTISATION) AND EXCEPTIONAL ITEMS | 7.7 | 7.5 | 18.1 | |
| Amortisation and impairment of intangible assets (excluding software amortisation) | (1.6) | (1.6) | (11.3) | |
| 3 | Exceptional items | |||
| - Restructuring and other costs | (6.4) | (20.3) | (42.0) | |
| - Profit on disposal of property | 0.8 | 2.6 | 2.1 | |
| 2 | OPERATING PROFIT / (LOSS) | 0.5 | (11.8) | (33.1) |
| Finance costs - Ordinary finance costs | (7.4) | (5.9) | (12.7) | |
| - Exceptional finance costs | (0.7) | - | (2.7) | |
| Finance income | 0.1 | 0.7 | 1.1 | |
| LOSS BEFORE TAXATION | (7.5) | (17.0) | (47.4) | |
| 5 | Taxation | 2.3 | 5.2 | 9.0 |
| LOSS FOR THE PERIOD FROM CONTINUING OPERATIONS | (5.2) | (11.8) | (38.4) | |
| DISCONTINUED OPERATIONS: | ||||
| 10 | (LOSS) / PROFIT FOR THE PERIOD FROM DISCONTINUED OPERATIONS | (0.9) | 2.3 | (6.5) |
| LOSS FOR THE PERIOD ATTRIBUTABLE TO EQUITY HOLDERS | (6.1) | (9.5) | (44.9) | |
| 6 | EARNINGS PER SHARE * | |||
| Basic earnings per share | ||||
| From continuing operations | (8.8p) | (19.9p) | (64.7p) | |
| From discontinued operations | (1.6p) | 3.9p | (11.1p) | |
| From continuing and discontinued operations | (10.4p) | (16.0p) | (75.8p) | |
| Diluted earnings per share | ||||
| From continuing operations | (8.8p) | (19.9p) | (64.7p) | |
| From discontinued operations | (1.6p) | 3.9p | (11.1p) | |
| From continuing and discontinued operations | (10.4p) | (16.0p) | (75.8p) | |
| * Earnings per share before intangibles amortisation and impairment (excluding software amortisation) and exceptional items are shown in Note 6. | ||||
The notes on pages 12 to 21 form an integral part of these consolidated interim financial statements.
Consolidated Statement of Recognised Income and Expense
| Half year to 30th June 2008 | Half year to 30th June 2007 | Year ended 31st December 2007 | |||
| Note | £m | £m | £m | ||
| Actuarial (loss) / gain on defined benefit pension plans | (9.5) | 16.1 | 10.4 | ||
| Taxation in respect of actuarial gain | 2.7 | (4.8) | (3.1) | ||
| Net movement on reserves in respect of IAS 19 actuarial gains and losses | (6.8) | 11.3 | 7.3 | ||
| Effects of changes in taxation rates | - | 0.3 | - | ||
| Cash flow hedges (net of taxation) | - fair value gains / (losses) | 0.6 | 0.9 | (0.6) | |
| - transfers to inventory | - | - | 0.3 | ||
| - transfers to interest | (0.1) | (0.1) | (0.2) | ||
| NET (EXPENSE) / INCOME RECOGNISED DIRECTLY IN EQUITY | (6.3) | 12.4 | 6.8 | ||
| Loss for the period | (6.1) | (9.5) | (44.9) | ||
| 11 | TOTAL RECOGNISED (EXPENSE) / INCOME FOR THE PERIOD | (12.4) | 2.9 | (38.1) | |
Consolidated Balance Sheet
| As at 30th June 2008 | As at 30th June 2007 | As at 31st December 2007 | ||
| Note | £m | £m | £m | |
| ASSETS | ||||
| NON-CURRENT ASSETS | ||||
| Goodwill | 89.2 | 138.9 | 117.7 | |
| Intangible assets | 13.6 | 37.1 | 32.9 | |
| Property, plant and equipment | 46.0 | 59.2 | 48.4 | |
| Textile rental items | 22.0 | 25.1 | 23.1 | |
| Trade and other receivables | 0.3 | 0.2 | - | |
| Derivative financial assets | 0.2 | 1.7 | - | |
| Deferred income tax assets | 15.7 | 9.7 | 13.8 | |
| 187.0 | 271.9 | 235.9 | ||
| CURRENT ASSETS | ||||
| Inventories | 4.3 | 30.5 | 30.5 | |
| Trade and other receivables | 64.2 | 65.0 | 69.0 | |
| Derivative financial assets | - | 0.1 | 0.6 | |
| Cash and cash equivalents | 5.6 | 9.4 | 16.3 | |
| 74.1 | 105.0 | 116.4 | ||
| LIABILITIES | ||||
| CURRENT LIABILITIES | ||||
| Trade and other payables | 20.4 | 28.2 | 27.7 | |
| Other creditors and accruals | 30.7 | 62.3 | 49.5 | |
| Current income tax liabilities | 11.4 | 0.2 | 0.3 | |
| Borrowings | 4.7 | 1.2 | 107.8 | |
| Derivative financial liabilities | - | 0.2 | 0.8 | |
| Provisions | 5.0 | 7.1 | 7.1 | |
| 72.2 | 99.2 | 193.2 | ||
| NET CURRENT ASSETS / (LIABILITIES) | 1.9 | 5.8 | (76.8) | |
| NON-CURRENT LIABILITIES | ||||
| Borrowings | 119.0 | 158.2 | 77.0 | |
| 8 | Retirement benefit obligations | 21.0 | 12.7 | 15.8 |
| Deferred income tax liabilities | 2.9 | 8.6 | 7.9 | |
| Provisions | 9.8 | 8.0 | 9.8 | |
| Derivative financial liabilities | - | 0.7 | 0.3 | |
| Other non-current liabilities | 1.3 | 1.6 | 1.5 | |
| 154.0 | 189.8 | 112.3 | ||
| NET ASSETS | 34.9 | 87.9 | 46.8 | |
| EQUITY | ||||
| CAPITAL AND RESERVES ATTRIBUTABLE TO THE COMPANY'S EQUITY HOLDERS | ||||
| 11 | Called up share capital | 5.9 | 5.9 | 5.9 |
| 11 | Share premium | 13.7 | 13.7 | 13.7 |
| 11 | Other reserves | 2.7 | 3.2 | 1.9 |
| 11 | Retained earnings | 12.6 | 65.1 | 25.3 |
| TOTAL EQUITY | 34.9 | 87.9 | 46.8 | |
The notes on pages 12 to 21 form an integral part of these consolidated interim financial statements. The consolidated interim financial statements on pages 8 to 21 were approved by the Board of Directors on 9th September 2008 and signed on its behalf by:
Y M Monaghan
Finance Director
Consolidated Cash Flow Statement
| Half year to 30th June 2008 | Half year to 30th June 2007 | Year ended 31st December 2007 | |||
| Note | £m | £m | £m | ||
| CASH FLOWS FROM OPERATING ACTIVITIES | |||||
| Loss for the period | (6.1) | (9.5) | (44.9) | ||
| Adjustments for: | |||||
| 5 | Income tax | - continuing operations | (2.3) | (5.2) | (9.0) |
| - discontinued operations | 13.4 | 0.9 | 1.5 | ||
| Finance income and expense | 8.0 | 5.2 | 14.3 | ||
| Depreciation | 10.8 | 13.3 | 28.6 | ||
| Amortisation of intangible assets and impairment of goodwill | 2.8 | 3.7 | 28.7 | ||
| Impairment of intangible assets | - | 15.5 | 17.0 | ||
| Write-off of textile rental items | - | 3.6 | 3.6 | ||
| Increase in inventories | (2.3) | (0.9) | (1.0) | ||
| Decrease in trade and other receivables | 6.0 | 6.7 | 0.8 | ||
| Decrease in trade and other payables | (15.2) | (9.8) | (10.9) | ||
| (Profit) / loss on sale of property, plant and equipment | (0.8) | (2.1) | 6.2 | ||
| Loss on disposal of intangible assets | - | - | 0.7 | ||
| Pre-tax gain on disposal of subsidiaries | (11.9) | - | - | ||
| Additional contribution to defined benefit pension schemes | (1.8) | (1.4) | (3.5) | ||
| Other non-cash movements | (2.0) | (1.5) | (0.4) | ||
| Cash (used in) / generated from operations | (1.4) | 18.5 | 31.7 | ||
| Interest paid | (9.0) | (5.8) | (15.0) | ||
| Taxation received | - | 0.3 | 0.5 | ||
| Net cash (used in) / generated from operating activities | (10.4) | 13.0 | 17.2 | ||
| CASH FLOWS FROM INVESTING ACTIVITIES | |||||
| Acquisition of subsidiaries (net of cash acquired) | - | (6.0) | (7.1) | ||
| 10 | Proceeds from sale of subsidiaries | 67.1 | - | - | |
| Purchase of property, plant and equipment | (4.6) | (9.0) | (12.5) | ||
| Proceeds from sale of property, plant and equipment | 1.3 | 3.6 | 5.7 | ||
| Purchase of intangible assets | (0.5) | (2.8) | (6.3) | ||
| Purchase of textile rental items | (5.3) | (10.4) | (19.4) | ||
| Proceeds from sale of textile rental items | 2.2 | 1.9 | 3.6 | ||
| Interest received | 0.1 | 0.2 | 1.1 | ||
| Net cash generated from / (used in) investing activities | 60.3 | (22.5) | (34.9) | ||
| CASH FLOWS FROM FINANCING ACTIVITIES | |||||
| Proceeds from borrowings | 197.0 | 27.0 | 63.0 | ||
| Repayments of borrowings | (257.0) | (20.0) | (31.0) | ||
| Capital element of finance leases | (0.6) | (0.5) | (1.4) | ||
| Net proceeds from issue of Ordinary shares | - | 1.0 | 1.0 | ||
| Net proceeds from sale of own shares in relation to employee share schemes | - | 0.1 | - | ||
| Dividends paid to company Shareholders | - | - | (8.9) | ||
| Net cash (used in) / generated from financing activities | (60.6) | 7.6 | 22.7 | ||
| Net (decrease) / increase in cash and cash equivalents | (10.7) | (1.9) | 5.0 | ||
| Cash and cash equivalents at beginning of period | 16.3 | 11.3 | 11.3 | ||
| 12 | Cash and cash equivalents at end of period | 5.6 | 9.4 | 16.3 | |
The notes on pages 12 to 21 form an integral part of these consolidated interim financial statements.
Notes to the Consolidated Interim Financial Statements
Johnson Service Group PLC ('the Company') and its subsidiaries (together 'the Group') provide a unique range of managed services, operating in two principal areas: textile related services and facilities management.
The Company is incorporated and domiciled in the UK. The Company's registered number is 523335. The address of its registered office is Johnson House, Abbots Park, Monks Way, Preston Brook, Cheshire, WA7 3GH.
The Company has its primary listing on the London Stock Exchange, with its shares traded on AIM.
The Group consolidated interim financial statements were approved for issue by the Board on 9th September 2008.
1 BASIS OF PREPARATION
These consolidated interim financial statements of Johnson Service Group PLC are for the six months ended 30th June 2008. They have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Services Authority, with IAS 34, 'Interim Financial Reporting', with those International Financial Reporting Standards (IFRS) and International Financial Reporting Interpretations Committee (IFRIC) interpretations as adopted by the European Union at 30th June 2008 and with those parts of the Companies Acts applicable to companies reporting under IFRS.
The consolidated interim financial statements have not been reviewed or audited, nor do they comprise statutory accounts for the purpose of Section 240 of the Companies Act 1985 (Section 434 of the Companies Act 2006), and do not include all of the information or disclosures required in the annual financial statements and should therefore be read in conjunction with the Group's 2007 consolidated financial statements.
The consolidated interim 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 31st December 2007. However, in accordance with the requirements of IFRS 5, 'Non-current Assets Held for Sale and Discontinued Operations', the comparatives within these consolidated interim financial statements have been amended to reflect the classification of certain operations as discontinued.
The following interpretations are mandatory for the first time for the financial year beginning 1st January 2008 but are not currently relevant or have no material impact to the Group's operation:
IFRIC 11, 'IFRS 2 - Group and treasury share transactions';
IFRIC 12, 'Service concession arrangements'; and
IFRIC 14, 'IAS 19 - the limit on a defined benefit asset, minimum funding requirements and their interaction'.
The preparation of the consolidated interim financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.
Financial information for the year ended 31st December 2007 included herein is derived from the statutory accounts for that year, which have been filed with the Registrar of Companies. The auditors' report on those accounts was unqualified and did not contain a statement under Section 237 (2) or 237 (3) of the Companies Act 1985 (as amended).
Seasonality or cyclicality could affect the Drycleaning division and Stalbridge Linen Services, although the Directors do not consider the effect of this seasonality or cyclicality to be significant in the context of the consolidated interim financial statements.
2 SEGMENT ANALYSIS
Segment information is presented in respect of the Group's business segments, which are based on the Group's management and internal reporting structure as at 30th June 2008.
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 the property company is allocated to segments based upon revenue during the year; and
Costs of the internal audit function are allocated to segments based upon revenue during the year.
Unallocated central overheads are shown separately. Inter-segment pricing is determined on an arm's length basis. The exceptional items have been included within the appropriate business segment as shown on pages 13 to 15.
The Textile Rental Services results for 2007 have been re-presented for the changed treatment of intra Group trading to reflect the disposal of Corporatewear.
Geographical segments
Revenue originates wholly within the United Kingdom and as a result, no geographical segments are presented within these interim financial statements. There is no significant difference between revenue by origin and revenue by destination.
Business segments
The continuing Group comprises the following main business segments and entities:
| Textile rental services Workwear rental supply and laundering and linen for the premium hotel, catering and corporate hospitality sector | Johnsons Apparelmaster Limited Stalbridge Linen Services |
| Drycleaning Provides drycleaning, laundry and ironing services, carpet cleaning, upholstery cleaning, wedding dress cleaning and suede & leather cleaning, and the supply of drycleaning consumables | Johnson Cleaners UK Limited Jeeves of Belgravia Limited Alex Reid Limited |
| Facilities management Delivering building, facilities and property management services to public, commercial and retail organisations. | SGP Property and Facilities Management Limited Workplace Engineering Limited |
The business segment results for the half year ended 30th June 2008, together with comparative figures, are as follows:
| Half year ended 30th June 2008 | Textile rental services | Drycleaning | Facilities Management | Unallocated | Total | |
| £m | £m | £m | £m | £m | ||
| REVENUE | ||||||
| Revenue | 60.8 | 46.1 | 23.4 | - | 130.3 | |
| Inter-segment revenue | - | - | (0.2) | - | (0.2) | |
| REVENUE - CONTINUING | 60.8 | 46.1 | 23.2 | - | 130.1 | |
| Revenue - Discontinued | 25.7 | |||||
| Total revenue | 155.8 | |||||
| REVENUE EXCLUDING COSTS RECHARGED TO CUSTOMERS | ||||||
| Revenue | 60.8 | 46.1 | 18.2 | - | 125.1 | |
| Inter-segment revenue | - | - | (0.2) | - | (0.2) | |
| REVENUE EXCLUDING COSTS RECHARGED TO CUSTOMERS - CONTINUING | 60.8 | 46.1 | 18.0 | - | 124.9 | |
| Revenue - Discontinued | 25.7 | |||||
| Total revenue excluding costs recharged to customers | 150.6 | |||||
| RESULT | ||||||
| Operating profit before intangibles amortisation and impairment (excluding software amortisation) and exceptional items | 6.5 | 1.8 | 1.7 | (2.3) | 7.7 | |
| Amortisation and impairment of intangible assets | (0.7) | - | (0.9) | - | (1.6) | |
| Exceptional items | ||||||
| - Restructuring and other costs | 0.1 | (0.1) | - | (6.4) | (6.4) | |
| - Profit on disposal of property | - | - | - | 0.8 | 0.8 | |
| Operating profit / (loss) | 5.9 | 1.7 | 0.8 | (7.9) | 0.5 | |
| Finance costs - Ordinary finance costs | (7.4) | |||||
| - Exceptional finance costs | (0.7) | |||||
| Finance income | 0.1 | |||||
| Loss before taxation | (7.5) | |||||
| Taxation | 2.3 | |||||
| Loss for the period - Continuing | (5.2) | |||||
| Discontinued operations - Corporatewear | (0.9) | |||||
| Loss for the period | (6.1) | |||||
| Half year ended 30th June 2007 | Textile rental services | Drycleaning | Facilities Management | Unallocated | Total | ||
| £m | £m | £m | £m | £m | |||
| REVENUE | |||||||
| Revenue | 64.4 | 46.6 | 48.4 | - | 159.4 | ||
| Inter-segment revenue | - | - | (0.5) | - | (0.5) | ||
| REVENUE - CONTINUING | 64.4 | 46.6 | 47.9 | - | 158.9 | ||
| Revenue - Discontinued | 39.0 | ||||||
| Total revenue | 197.9 | ||||||
| REVENUE EXCLUDING COSTS RECHARGED TO CUSTOMERS | |||||||
| Revenue | 64.4 | 46.6 | 25.8 | - | 136.8 | ||
| Inter-segment revenue | - | - | (0.5) | - | (0.5) | ||
| REVENUE EXCLUDING COSTS RECHARGED TO CUSTOMERS - CONTINUING | 64.4 | 46.6 | 25.3 | - | 136.3 | ||
| Revenue - Discontinued | 39.0 | ||||||
| Total revenue excluding costs recharged to customers | 175.3 | ||||||
| RESULT | |||||||
| Operating profit before intangibles amortisation and impairment (excluding software amortisation) and exceptional items | 5.1 | 2.5 | 2.5 | (2.6) | 7.5 | ||
| Amortisation and impairment of intangible assets | (0.6) | - | (1.0) | - | (1.6) | ||
| Exceptional items | |||||||
| - Restructuring and other costs | (4.2) | - | (0.2) | (15.9) | (20.3) | ||
| - Profit on disposal of property | 1.4 | 1.2 | - | - | 2.6 | ||
| Operating profit / (loss) | 1.7 | 3.7 | 1.3 | (18.5) | (11.8) | ||
| Finance costs | (5.9) | ||||||
| Finance income | 0.7 | ||||||
| Loss before taxation | (17.0) | ||||||
| Taxation | 5.2 | ||||||
| Loss for the period - Continuing | (11.8) | ||||||
| Discontinued operations - Corporatewear | 2.3 | ||||||
| Loss for the period | (9.5) | ||||||
| Year ended 31st December 2007 | Textile rental services | Drycleaning | Facilities Management | Unallocated | Total | ||
| £m | £m | £m | £m | £m | |||
| REVENUE | |||||||
| Revenue | 129.0 | 94.6 | 94.4 | - | 318.0 | ||
| Inter-segment revenue | - | - | (1.2) | - | (1.2) | ||
| REVENUE - CONTINUING | 129.0 | 94.6 | 93.2 | - | 316.8 | ||
| Revenue - Discontinued | 89.3 | ||||||
| Total revenue | 406.1 | ||||||
| REVENUE EXCLUDING COSTS RECHARGED TO CUSTOMERS | |||||||
| Revenue | 129.0 | 94.6 | 53.3 | - | 276.9 | ||
| Inter-segment revenue | - | - | (1.2) | - | (1.2) | ||
| REVENUE EXCLUDING COSTS RECHARGED TO CUSTOMERS - CONTINUING | 129.0 | 94.6 | 52.1 | - | 275.7 | ||
| Revenue - Discontinued | 89.3 | ||||||
| Total revenue excluding costs recharged to customers | 365.0 | ||||||
| RESULT | |||||||
| Operating profit before intangibles amortisation and impairment (excluding software amortisation) and exceptional items | 11.6 | 6.0 | 5.9 | (5.4) | 18.1 | ||
| Amortisation and impairment of intangible assets | (1.3) | (1.4) | (8.6) | - | (11.3) | ||
| Exceptional items | |||||||
| - Restructuring and other costs | (13.1) | (0.1) | (1.5) | (27.3) | (42.0) | ||
| - Profit on disposal of property | 0.9 | 1.2 | - | - | 2.1 | ||
| Operating profit / (loss) | (1.9) | 5.7 | (4.2) | (32.7) | (33.1) | ||
| Finance costs - Ordinary finance costs | (12.7) | ||||||
| - Exceptional finance costs | (2.7) | ||||||
| Finance income | 1.1 | ||||||
| Loss before taxation | (47.4) | ||||||
| Taxation | 9.0 | ||||||
| Loss for the period - Continuing | (38.4) | ||||||
| Discontinued operations - Corporatewear | (6.5) | ||||||
| Loss for the period | (44.9) | ||||||
3 EXCEPTIONAL ITEMS
| Half year to 30th June 2008 | Half year to 30th June 2007 | Year ended 31st December 2007 | |
| £m | £m | £m | |
| Restructuring costs - Textile rental services | (0.9) | (0.6) | (9.5) |
| - Drycleaning | (0.1) | - | (0.1) |
| - Facilities management | - | (0.2) | (1.5) |
| - Group | (0.4) | - | (4.5) |
| Total | (1.4) | (0.8) | (15.6) |
| Professional fees associated with bank restructuring process | (6.0) | - | (2.4) |
| Onerous lease and environmental costs | - | - | (3.7) |
| Write-off of rental stock | - | (3.6) | (3.6) |
| Write-off of ERP system (software and hardware) | - | (15.9) | (16.7) |
| Legal costs and provisions | 1.0 | - | - |
| Total restructuring and other costs | (6.4) | (20.3) | (42.0) |
| Profit on disposal of property | 0.8 | 2.6 | 2.1 |
| Total exceptional items | (5.6) | (17.7) | (39.9) |
Exceptional items in relation to discontinued operations have been included within the result from discontinued operations.
In addition to the items above, the Group recognised exceptional finance costs in the period of £0.7 million (June 2007: £nil; December 2007: £2.7 million). The exceptional finance costs during the period relate to the write-off of bank fees on that part of the new bank facility which was repaid during the period. The exceptional finance costs in the period to December 2007 relate to a fee of £1.5 million which the Group was required to pay to its bankers as part of the negotiations of a covenant waiver ahead of the December 2007 covenant test together with the write-off of the remaining £1.2 million unamortised fees paid in respect of the previous facility.
4 ADJUSTED PROFIT BEFORE TAXATION
| Half year to 30th June 2008 | Half year to 30th June 2007 | Year ended 31st December 2007 | |
| £m | £m | £m | |
| Loss before taxation | (7.5) | (17.0) | (47.4) |
| Intangibles amortisation and impairment (excluding software amortisation) | 1.6 | 1.6 | 11.3 |
| Restructuring and other costs | 6.4 | 20.3 | 42.0 |
| Profit on disposal of property | (0.8) | (2.6) | (2.1) |
| Exceptional finance costs in respect of bank fees | 0.7 | - | 2.7 |
| Adjusted profit before taxation | 0.4 | 2.3 | 6.5 |
| Taxation | (0.1) | (0.8) | (4.2) |
| Adjusted profit after taxation attributable to continuing operations | 0.3 | 1.5 | 2.3 |
5 TAXATION
| Half year to 30th June 2008 | Half year to 30th June 2007 | Year ended 31st December 2007 | |
| £m | £m | £m | |
| Current tax | |||
| UK corporation tax credit for the period - continuing operations | (2.2) | (0.7) | (3.3) |
| Adjustment in relation to previous periods - continuing operations | (0.3) | - | 1.0 |
| Current tax credit for the period - continuing operations | (2.5) | (0.7) | (2.3) |
| Deferred tax | |||
| Origination and reversal of temporary differences - continuing operations | 0.2 | (4.5) | (6.8) |
| Adjustment in relation to previous periods - continuing operations | - | - | 0.1 |
| Deferred tax charge / (credit) for the period - continuing operations | 0.2 | (4.5) | (6.7) |
| Total credit for taxation included in the income statement for continuing operations | (2.3) | (5.2) | (9.0) |
Taxation on the restructuring and other costs in the current period has reduced the UK corporation tax charge by £1.8 million (June 2007: £6.0 million reduction; December 2007: £11.8 million reduction). Tax relief on intangibles amortisation has reduced UK corporation tax by £0.4 million (June 2007: £0.5 million reduction; December 2007: £1.0 million reduction). The tax charge on the property disposals has increased the charge for taxation by £nil (June 2007: £0.5 million increase; December 2007: £0.4 million increase). The tax relief on the exceptional finance costs has reduced the charge for taxation by £0.2 million (June 2007: £nil; December 2007: £0.8 million).
Reconciliation of effective tax rate
Taxation for the six months to 30th June 2008 is calculated based on the estimated average annual effective income tax rate of 30.9% (half year ended 30th June 2007: 30.9%; year ended 31st December 2007: 16.2%), as compared to the tax rate expected to be enacted or substantively enacted at the annual balance sheet date of 28% (half year ended 30th June 2007: 30%; year ended 31st December 2007: 30%). Differences between the estimated average annual effective income tax rate and statutory rate include, but are not limited to, the effect of non-deductible expenses, tax incentives not recognised in profit or loss, the effect of tax losses utilised and under/over provisions in previous years.
6 EARNINGS PER SHARE
| Half year to 30th June 2008 | Half year to 30th June 2007 | Year ended 31st December 2007 | ||
| £m | £m | £m | ||
| Loss for the period attributable to Ordinary Shareholders (continuing operations) | (5.2) | (11.8) | (38.4) | |
| (Loss) / profit for the period attributable to Ordinary Shareholders (discontinued operations) | (0.9) | 2.3 | (6.5) | |
| Intangibles amortisation (excluding software) (net of taxation) (continuing operations) | 1.2 | 1.1 | 10.3 | |
| Intangibles amortisation (excluding software) (net of taxation) (discontinued operations) | 0.7 | 0.9 | 15.1 | |
| Exceptional items from continuing operations (net of taxation) | 3.8 | 12.2 | 28.5 | |
| Exceptional items from discontinued operations (net of taxation) | 1.3 | 0.1 | 0.8 | |
| Exceptional finance costs in respect of bank fees (net of taxation) | 0.5 | - | 1.9 | |
| Adjusted profit attributable to Ordinary Shareholders | 1.4 | 4.8 | 11.7 | |
| Weighted average number of Ordinary shares | 59,418,531 | 59,293,499 | 59,295,914 | |
| Potentially Dilutive options * | 1,316,444 | 254,292 | 56,055 | |
| Fully diluted number of Ordinary shares | 60,734,975 | 59,547,791 | 59,351,969 | |
| Basic earnings per share | ||||
| From continuing operations | (8.8p) | (19.9p) | (64.7p) | |
| From discontinued operations | (1.6p) | 3.9p | (11.1p) | |
| From continuing and discontinued operations | (10.4p) | (16.0p) | (75.8p) | |
| Adjustment for intangibles amortisation (continuing operations) | 2.0p | 1.9p | 17.3p | |
| Adjustment for intangibles amortisation (discontinued operations) | 1.0p | 1.5p | 25.6p | |
| Adjustment for exceptional items (continuing operations) | 6.4p | 20.5p | 48.1p | |
| Adjustment for exceptional items (discontinued operations) | 2.3p | 0.2p | 1.3p | |
| Adjustment for exceptional finance costs in respect of bank fees | 0.8p | - | 3.2p | |
| Adjusted basic earnings per share (continuing operations) | 0.4p | 2.5p | 3.9p | |
| Adjusted basic earnings per share (discontinued operations) | 1.7p | 5.6p | 15.8p | |
| Adjusted basic earnings per share from continuing and discontinued operations | 2.1p | 8.1p | 19.7p | |
| Diluted earnings per share | ||||
| From continuing operations | (8.8p) | (19.9p) | (64.7p) | |
| From discontinued operations | (1.6p) | 3.9p | (11.1p) | |
| From continuing and discontinued operations | (10.4p) | (16.0p) | (75.8p) | |
| Adjustment for intangibles amortisation (continuing operations) | 2.0p | 1.9p | 17.3p | |
| Adjustment for intangibles amortisation (discontinued operations) | 1.0p | 1.5p | 25.6p | |
| Adjustment for exceptional items (continuing operations) | 6.4p | 20.5p | 48.1p | |
| Adjustment for exceptional items (discontinued operations) | 2.3p | 0.2p | 1.3p | |
| Adjustment for exceptional finance costs in respect of bank fees | 0.8p | - | 3.2p | |
| Adjusted diluted earnings per share (continuing operations) | 0.4p | 2.5p | 3.9p | |
| Adjusted diluted earnings per share (discontinued operations) | 1.7p | 5.6p | 15.8p | |
| Adjusted diluted earnings per share from continuing and discontinued operations | 2.1p | 8.1p | 19.7p | |
* Includes outstanding share options granted to employees and warrants issued to the Company's banks
Basic earnings per share is calculated using the weighted average number of shares in issue during the period, excluding those held by the ESOP, based on the profit for the period attributable to Ordinary Shareholders.
Adjusted earnings per share figures are given to exclude the effects of intangibles amortisation and impairment (excluding software amortisation), exceptional items and exceptional finance costs, all net of taxation, and are considered to show the underlying results of the Group.
For diluted earnings per share, the weighted average number of Ordinary shares in issue is adjusted to assume conversion of all potential dilutive Ordinary shares. The Company has potential dilutive Ordinary shares arising from share options granted to employees where the exercise price is less than the average market price of the Company's Ordinary shares during the period and warrants issued to the Company's banks.
Potential dilutive Ordinary shares are dilutive at the profit from continuing operations level when their conversion to Ordinary shares would decrease earnings per share or increase loss per share from continuing operations. In the period to 30th June 2008, potential dilutive Ordinary shares are antidilutive, as their inclusion in the diluted earnings per share calculation would reduce the loss from continuing and discontinued operations. For the period ended 30th June 2007, potential dilutive Ordinary shares have been treated as antidilutive, as their inclusion in the diluted earnings per share calculation would reduce the loss from continuing operations. For the period ended 31st December 2007, potential dilutive Ordinary shares have been treated as antidilutive, as their inclusion in the diluted earnings per share calculation would reduce the loss from continuing and discontinued operations.
Other than for the issue of 150,000,000 new Ordinary Shares as a result of the placing, the issue of 39,828,824 new Ordinary Shares as a result of the open offer, the granting of 3,050,000 share options to Senior Management and the granting of 2,493,024 share options under the Long Term Growth Plan, there were no other material events occurring after the balance sheet date that would have changed significantly the number of Ordinary Shares or Potential Ordinary Shares outstanding at the balance sheet date, if those transactions had occurred before the end of the reporting period.
7 DIVIDENDS
No dividends have been paid in the period to 30th June 2008.
On 10th May 2007 a dividend of 15.0p in respect of the 2006 final dividend on the Ordinary shares was approved by Shareholders at the Annual General Meeting. The dividend, classified within 'other creditors and accruals' at 30th June 2007, was paid on 9th July 2007, utilising £8.9 million of Shareholders' funds.
8 RETIREMENT BENEFIT OBLIGATIONS
The Group has applied the requirements of IAS 19, 'Employee Benefits' to its employee pension schemes and post-retirement healthcare benefits.
As part of the Group's objective to reduce its overall pension liability, additional contributions of £1.8 million were paid by the Group to the Johnson Group Staff Pension Scheme during the period to 30th June 2008 (30th June 2007: £1.4 million; 31st December 2007: £2.8 million) and a separate payment of £2.1 million was paid directly by the purchaser from the consideration of the sale of the Corporatewear division. In addition, a further contribution of £0.3 million was paid to the WML Final Salary Pension Scheme in July 2008, and monthly contributions of £0.1 million are being paid into the Johnson Group Staff Pension Scheme for the remainder of 2008.
Following discussions with the Group's appointed actuary it has been identified that an actuarial loss of £9.5 million should be recognised in the period to 30th June 2008. This is principally as a result of an adverse movement in market assumptions and a significant fall in the value of equity investments.
The gross retirement benefit liability and associated deferred tax asset thereon, together with the net liability is shown below:
| As at 30th June 2008 | As at 30th June 2007 | As at 31st December 2007 | |
| £m | £m | £m | |
| Gross retirement benefit liability | (21.0) | (12.7) | (15.8) |
| Deferred tax asset thereon | 6.3 | 4.2 | 4.8 |
| Net liability | (14.7) | (8.5) | (11.0) |
9 CAPITAL EXPENDITURE AND COMMITMENTS
CAPITAL EXPENDITURE
In the six months ended 30th June 2008 the Group acquired property, plant and equipment and intangible assets with a net book value of £4.6 million (June 2007: £7.3 million; December 2007: £13.1 million), not including property, plant and equipment and intangible assets acquired through business combinations. In addition, textile rental items with a net book value of £8.1 million were acquired during the period (June 2007: £10.3 million; December 2007: £18.5 million).
Offsetting this, property, plant and equipment and intangible assets with a net book value of £0.5 million were disposed of during the period (June 2007: £17.1 million; December 2007: £27.4 million), not including property, plant and equipment and intangible assets disposed of through the sale of subsidiaries.
CAPITAL COMMITMENTS
Commitments for future financial expenditure contracted but not provided for in the financial statements are shown below:
| As at 30th June 2008 | As at 30th June 2007 | As at 31st December 2007 | |
| £m | £m | £m | |
| Property, plant and equipment | 0.9 | 1.3 | 1.3 |
| 0.9 | 1.3 | 1.3 |
10 BUSINESS COMBINATIONS AND DISPOSALS
ACQUISITIONS
The Group has made no acquisitions in the period.
DISPOSALS
On 19th March 2008 Johnson Clothing Limited, the Group's Corporatewear business, disposed of assets including stock, certain supply contracts and associated goodwill relating to CCM, the company's garment sourcing business, to its fellow subsidiary Johnsons Apparelmaster Limited. The CCM business was then immediately sold to a third party for an initial cash consideration of £2.6 million with up to a further £0.2 million deferred consideration.
On 28th April 2008, the Group sold the entire share capital of Johnson Clothing Limited on a debt free cash free basis. The revenue and profit after tax of Johnson Clothing Limited in the period to the date of disposal, the post-tax loss on disposal together with the net assets of Johnson Clothing Limited as at the date of disposal were as follows:
| Half year to 30th June 2008 | Half year to 30th June 2007 | Year ended 31st December 2007 | |
| £m | £m | £m | |
| Revenue from discontinued operations | 25.7 | 39.0 | 89.3 |
| Profit / (loss) before taxation from discontinued operations | 0.6 | 3.2 | (5.0) |
| Taxation | (0.2) | (0.9) | (1.5) |
| Profit / (loss) for the period | 0.4 | 2.3 | (6.5) |
| Consideration (net of disposal costs) | 84.4 | - | - |
| Total net assets disposed of | (72.5) | - | - |
| Pre-tax Gain on disposal | 11.9 | - | - |
| Taxation | (13.2) | - | - |
| Loss on disposal | (1.3) | - | - |
| Retained (loss) / profit from discontinued operations | (0.9) | 2.3 | (6.5) |
| Total Net Assets disposed of: | |||
| Goodwill | 28.5 | - | - |
| Intangible assets | 17.0 | - | - |
| Property, plant and equipment | 2.2 | - | - |
| Stock | 26.4 | - | - |
| Trade and other receivables | 16.3 | - | - |
| Trade and other payables | (17.9) | - | - |
| 72.5 | - | - |
The cash flows (excluding proceeds from disposal) from discontinued operations included within the consolidated interim cash flow statement are as follows:
| Half year to 30th June 2008 | Half year to 30th June 2007 | Year ended 31st December 2007 | |
| £m | £m | £m | |
| Net cash (used in) / generated from operating activities | (5.4) | (2.8) | 0.9 |
| Net cash generated from / (used in) investing activities | 2.1 | (0.7) | (1.5) |
| Net cash flow | (3.3) | (3.5) | (0.6) |
Cash Received for Disposals
| Half year to 30th June 2008 | Half year to 30th June 2007 | Year ended 31st December 2007 | |
| £m | £m | £m | |
| Cash Consideration | 82.5 | - | - |
| Deferred Amount (Received in July 2008) | 4.6 | - | - |
| Total Consideration | 87.1 | - | - |
| Costs | (2.7) | - | - |
| Tax liability | (13.2) | - | - |
| Pension contribution | (2.1) | - | - |
| Deferred cash | (4.6) | - | - |
| Cash received in the period to 30th June 2008 | 64.5 | - | - |
| Cash received from the disposal of CCM in period to 30th June 2008 | 2.6 | - | - |
| Total Cash received in respect of Disposals included within the Cash Flow Statement | 67.1 | - | - |
11 CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
| Share capital | Share premium | Other reserves | Retained earnings | Total equity | |
| £m | £m | £m | £m | £m | |
| Balance at 1st January 2007 | 5.9 | 12.7 | 2.4 | 71.6 | 92.6 |
| Total recognised income and expense for the period | - | - | 0.8 | 2.1 | 2.9 |
| Dividends | - | - | - | (8.9) | (8.9) |
| Issue of share capital | - | 1.0 | - | - | 1.0 |
| Share options (value of employee services) | - | - | - | 0.2 | 0.2 |
| Consideration received by ESOP | - | - | - | 0.1 | 0.1 |
| Balance at 30th June 2007 | 5.9 | 13.7 | 3.2 | 65.1 | 87.9 |
| Total recognised income and expense for the period | - | - | (1.3) | (39.7) | (41.0) |
| Consideration received by ESOP | - | - | - | (0.1) | (0.1) |
| Balance at 31st December 2007 | 5.9 | 13.7 | 1.9 | 25.3 | 46.8 |
| Total recognised income and expense for the period | - | - | 0.5 | (12.9) | (12.4) |
| Reserve created on Issue of Warrants | - | - | 0.3 | - | 0.3 |
| Share options (value of employee services) | - | - | - | 0.2 | 0.2 |
| Balance at 30th June 2008 | 5.9 | 13.7 | 2.7 | 12.6 | 34.9 |
12 ANALYSIS OF NET DEBT
| Cash and cash equivalents | Debt due within one year | Debt due after more than one year | Finance leases | Total net debt | |
| £m | £m | £m | £m | £m | |
| Balance at 31st December 2006 | 11.3 | - | (149.4) | (4.4) | (142.5) |
| Cash flow | (1.9) | - | (7.0) | 0.5 | (8.4) |
| Other non-cash changes | - | - | 0.9 | - | 0.9 |
| Balance at 30th June 2007 | 9.4 | - | (155.5) | (3.9) | (150.0) |
| Cash flow | 6.9 | - | (25.0) | 0.9 | (17.2) |
| Other non-cash changes | - | (106.8) | 105.5 | - | (1.3) |
| Balance at 31st December 2007 | 16.3 | (106.8) | (75.0) | (3.0) | (168.5) |
| Cash flow | (10.7) | 102.3 | (42.3) | 0.6 | 49.9 |
| Other non-cash changes | - | 0.6 | (0.1) | - | 0.5 |
| Balance at 30th June 2008 | 5.6 | (3.9) | (117.4) | (2.4) | (118.1) |
13 RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
| Half year to 30th June 2008 | Half year to 30th June 2007 | Year ended 31st December 2007 | |
| £m | £m | £m | |
| (Decrease) / increase in cash in the period | (10.7) | (1.9) | 5.0 |
| Cash inflow / (outflow) on change in debt and lease financing | 60.6 | (6.5) | (30.6) |
| Change in net debt resulting from cash flows | 49.9 | (8.4) | (25.6) |
| Effect of recognition and amortisation of bank facility issue costs | 1.2 | 0.9 | (0.4) |
| Effect of capitalised interest on bank facility | (0.7) | - | - |
| Movement in net debt during the period | 50.4 | (7.5) | (26.0) |
| Opening net debt | (168.5) | (142.5) | (142.5) |
| Closing net debt | (118.1) | (150.0) | (168.5) |
14 RELATED PARTY TRANSACTIONS
Transactions during the year between the Company and its subsidiaries, which are related parties, have been conducted on an arms length basis and eliminated on consolidation.
Full details of the Group's other related party relationships, transactions and balances are given in the Group's financial statements for the year ended 31st December 2007. There have been no material changes in these relationships in the half year to 30th June 2008 or up to the date of this report.
15 EVENTS AFTER THE BALANCE SHEET DATE
Placing
On 11th June 2008, the Group announced a conditional non pre-emptive placing to institutional and other professional investors of 150,000,000 new Ordinary Shares at 20 pence per Ordinary Share. The placing duly completed on 7th July 2008, raising £30 million (£27.8 million net of expenses). The placing represented approximately 252.2 per cent. of the existing issued share capital of the Group as at 11th June 2008 and approximately 71.6 per cent. of the issued share capital of the Group post placing.
Open Offer
On 6th August 2008, the Group announced that it proposed to raise up to approximately £10 million (£9 million net of expenses) by way of an open offer made to qualifying shareholders and warrantholders of up to 49,945,035 open offer shares at the issue price of 20 pence per open offer share. The principal reason for making the open offer was to provide qualifying shareholders an opportunity to invest in the Group at the same price at which the placing shares were issued and to mitigate the dilutive effects of the placing. The minimum pro rata entitlement of qualifying shareholders and warrantholders under the open offer was calculated on the basis of 8 open offer shares for every 10 Ordinary Shares or entitlement to 10 warrant shares (as the case may be) held.
The open offer duly completed on 8th September 2008, raising £8.0 million (approximately £7.2 million net of expenses). The 39,828,824 shares issued as a result of the open offer represent approximately 19.0 per cent. of the existing issued share capital of the Group as at 6th August 2008 and approximately 16.0 per cent. of the issued ordinary share capital of the Group post open offer.
16 PUBLISHED FINANCIAL STATEMENTS
Copies of the interim report are to be sent to Shareholders and will be available to members of the public at the Company's registered office at Johnson House, Abbots Park, Monks Way, Preston Brook, Cheshire WA7 3GH. The report can also be accessed on the internet at www.johnsonplc.com