Acquisitions and Trading Update

 

TIDMJSG TIDMJRVS 
 
RNS Number : 4782O 
Johnson Service Group PLC 
30 June 2010 
 

 
                                                                            30th 
                                                                       June 2010 
 
                            Johnson Service Group PLC 
          Acquisitions of PFI Contracts and Pre-Close Trading Statement 
 
Trading conditions in the first half remain in line with comments made at the 
time of the preliminary results in March and we continue to expect to achieve a 
result which is in line with the Board's expectations for 2010. 
 
We have continued our search for acquisitions to leverage our presence in 
Textile Rental and Facilities Management ("FM") and are very pleased that this 
has resulted in the purchase of 3 PFI contracts from Jarvis PLC (in 
administration) ("Jarvis") towards  the end of the second quarter. 
 
Acquisition of PFI contracts 
 
We are pleased to announce the completion of the acquisition of 3 PFI contracts, 
together with 2 related Special Purpose Companies (SPCs) from Jarvis. 
 
The 3 contracts, whilst under the management of Jarvis, generated revenue of 
GBP4.0 million in the year to March 2010, employ some 86 staff and each have 
over 15 years on the contract term remaining. 
 
In addition to the contracts already acquired we have reached agreement with 
Jarvis to manage, under licence, a further 5 FM contracts, together with the 
related SPCs, pending acquisition.  The 5 contracts, whilst under the management 
of Jarvis, generated revenue of GBP6.5 million in the year to March 2010, employ 
some 160 staff and each have over 15 years on the contract term remaining. We 
are hopeful in bringing these to a successful conclusion within the coming 
weeks. 
 
The aggregate consideration for all of the 8 contracts and 7 related SPCs is 
expected to be GBP3.0 million in cash on completion and will be financed from 
existing bank facilities, of which GBP1.2 million plus costs has been incurred 
to date. 
 
The FM contracts provide services including catering, cleaning and maintenance, 
for specific schools, primary care trusts and local authorities and are similar 
to contracts where SGP already has significant experience. 
 
SGP anticipates the acquisitions to be earnings enhancing in the second half of 
2010 and beyond.  The 8 contracts will add some 35% to SGP revenue (excluding 
customer recharges) in a full year and will significantly increase its presence 
in the PFI market. Following the acquisition of the 8 contracts the proforma 
revenue generation from long term PFI contracts is expected to be some 60% of 
the total revenue (excluding customer recharges) of SGP. 
 
Facilities Management 
 
SGP has maintained revenue (excluding customer recharges) and adjusted operating 
profit at broadly similar levels to the first half of 2009 despite, as 
previously announced, investment in additional overhead to support accelerated 
growth in revenue and profitability in the medium and longer term. Most of the 
additional resource is now in place and there are already positive signs of a 
strengthening of SGP's new longer term business pipeline particularly around the 
technical and project activity areas. 
 
Drycleaning 
 
As referred to at the time of the preliminary results in March, drycleaning was 
significantly impacted by the severe winter weather in the first 6 weeks of the 
year.  We anticipate that like for like sales for the first half will be some 5% 
down although during the last 12 weeks the like for like sales decrease has 
fallen to 1.4% which we anticipate to be more representative of the second half. 
 
The impact of the weather combined with lower than anticipated revenue has 
resulted in a significant reduction in profit compared to the same period in 
2009, despite a further reduction in the weekly cost base. 
 
We have continued to invest in the rollout of Greenearth  stores and technology 
and the like for like sales of those rebranded stores continue to run ahead of 
the core estate.  We now have 136 rebranded stores. 
 
Restructuring 
As indicated at the time of the preliminary results in March the management of 
Johnson Cleaners has been working to optimise the performance of stores in our 
more marginal locations. This review has led to new initiatives for increasing 
revenue at many units but has also identified a number of loss making stores 
which have continued to decline at a faster rate and where, in management's 
view, overall efficiency and focus will be improved by their closure. We have 
therefore decided to strengthen the overall portfolio by the closure of 20 such 
stores over and above those at lease expiry which also allows a reduction in 
overhead.  Following the closure of these stores as well as those with lease 
expiry during 2010, the portfolio, including planned new store openings, is 
expected to be approximately 470 at 31 December 2010. The review has also 
identified a further 8 stores which it is uneconomic to close at the present 
time but which we are unlikely to restore to profitability and in respect of 
which we are making a provision for likely future losses and asset impairment. 
The reduced number of stores will be reflected in reduced operating costs of the 
business going forward including the restructuring of the warehousing and 
logistical operations supporting the division. 
 
The total exceptional cost to be recognised for the restructuring of the 
division is anticipated to be GBP6.5 million of which GBP0.7 million is non 
cash. It is estimated that GBP2.4 million will be expended in cash in 2010 with 
the remaining cash outflow over the next 5 years. The majority of the cash 
outflow is in respect of existing property lease commitments which will remain 
until the locations are disposed of. 
 
Both as a result of existing initiatives together with the restructuring 
announced above we expect drycleaning profitability to improve significantly in 
the second half. 
 
Textile Rental 
 
The Textile Rental division has performed well in difficult markets and is 
expected to show a further improved adjusted operating profit performance 
despite market pressures on revenue. 
 
Johnsons Apparelmaster has continued to experience reduced spend by existing 
customers although at a lower level than that seen in the first half of 2009. 
 
New sales have been slower but remain encouraging and cost savings have more 
than offset the impact of reduced revenue. 
 
Stalbridge has continued to achieve further operating efficiencies and has again 
exceeded our expectations. We anticipate a first half adjusted operating profit 
in excess of GBP0.5 million, compared to breakeven in the first half of 2009. 
 
Net Debt 
 
Net debt at the end of June is anticipated to be approximately GBP65.0 million 
(December 2009: GBP67.7 million) after a cash outflow of GBP1.3 million on 
acquisitions and related costs and a corporation tax repayment of GBP2.0 
million. 
 
We anticipate announcing the results for the first half of 2010 on 1 September 
2010. 
 
Enquiries: 
+--------------+--------------+ 
| Johnson      |              | 
| Service      |              | 
| Group        |              | 
| PLC          |              | 
+--------------+--------------+ 
| John         | Yvonne       | 
| Talbot,      | Monaghan,    | 
| Executive    | Finance      | 
| Chairman     | Director     | 
+--------------+--------------+ 
| Tel:         | Tel:         | 
| 01928 704600 | 01928 704600 | 
+--------------+--------------+ 
 
Threadneedle Communications 
Graham Herring/John Coles 
Tel: [phone] 
 
 
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