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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Johnson Service Group Plc | LSE:JSG | London | Ordinary Share | GB0004762810 | ORD 10P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.60 | 0.46% | 131.20 | 131.00 | 132.20 | 131.40 | 130.00 | 130.60 | 15,276 | 09:48:29 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| Business Services, Nec | 465.3M | 27.3M | 0.0659 | 19.94 | 544.54M |
From Apr 2019 to Apr 2024
TIDMJSG
RNS Number : 6568P
Johnson Service Group PLC
04 September 2017
4 September 2017
AIM: JSG
Johnson Service Group PLC
('JSG' or 'the Group')
Interim Results for the Six Months ended 30 June 2017
"Another strong performance"
HIGHLIGHTS
Hot Features
Premium
H1 2016
Continuing Operations H1 2017 Restated(1) % increase FY 2016
------------------------- ---------- ------------- ----------- ------------
Adjusted results(2)
Revenue GBP138.0m GBP115.7m 19.3% GBP256.7m
Adjusted operating GBP18.6m GBP15.5m 20.0% GBP37.7m
profit
Operating margin 13.5% 13.4% - 14.7%
Adjusted profit GBP16.8m GBP13.6m 23.5% GBP33.8m
before taxation
Adjusted fully diluted
EPS 3.7p 3.2p 15.6% 7.6p
Dividend 0.9p 0.8p 12.5% 2.5p
Net debt GBP90.0m GBP108.9m - GBP98.2m(3)
Statutory results
Operating profit GBP14.7m GBP11.8m 24.6% GBP29.8m
Profit before taxation GBP12.9m GBP9.9m 30.3% GBP25.9m
Fully diluted EPS 2.8p 2.3p 21.7% 5.9p
-- Strong financial performance:
- reflects both strong organic growth of 4.8% together with the benefits of recent acquisitions - net debt of GBP90.0m, with the reduction better than expected
-- Interim dividend increased by 12.5% to 0.9 pence per share (June 2016: 0.8 pence)
-- Significant capital investment in the period has increased production capacity at selected sites
-- Disposal of Drycleaning activities completed in January 2017
-- Acquisition of high volume hotel linen business, PLS, completed on 28 July 2017
- extending coverage to Scotland and Northern England
-- Full year results are expected to be slightly ahead of current market expectations
Notes
1 The June 2016 Income Statement has been restated to reflect the presentation of Drycleaning as a Discontinued Operation.
2 Excluding amortisation of intangible assets (excluding software amortisation) and exceptional items (see note 5).
3 Net debt at 31 December 2016 included GBP0.8 million of cash within "assets classified as held for sale" relating to the Drycleaning disposal.
Chris Sander, Chief Executive Officer of Johnson Service Group, commented:
"Our well planned strategy, combined with continued capital investment driving operational efficiencies, has enabled us to deliver another strong set of results.
We are well placed to exploit the opportunities that exist within our market sectors and the exceptional performance across all of our brands gives us confidence that this will continue in the second half. We therefore expect results for the full year to be slightly ahead of current market expectations".
ANALYST MEETING
A presentation for analysts will be held today at 09:30 at Investec, 2 Gresham Street, London, EC2V 7QP. A copy of the presentation will be available on the Company's website (www.jsg.com) following the meeting.
ENQUIRIES
Johnson Service Group PLC Chris Sander, CEO Yvonne Monaghan, CFO Tel: 020 3178 6378 (on the day) Tel: 01928 704 600 (thereafter) Investec Investment Banking (NOMAD) KTZ Communications (Financial PR) David Flin Katie Tzouliadis Matt Lewis Irene Bermont-Penn Darren Vickers Emma Pearson Tel: 020 7597 4000 Tel: 020 3178 6378
Note: throughout this statement 'adjusted operating profit' refers to continuing operating profit before amortisation of intangible assets (excluding software amortisation) and exceptional items. 'Adjusted profit before taxation' refers to adjusted operating profit less total finance cost. 'Adjusted EBITDA', for gearing purposes, refers to adjusted operating profit for the relevant period plus the depreciation charge for property, plant and equipment and software amortisation. The Board considers that 'adjusted operating profit', 'adjusted profit before taxation, 'adjusted EBITDA' and 'adjusted EPS', which all exclude the effects of non-recurring items or non-operating events, provide useful information for Shareholders on underlying trends and performance.
The Drycleaning results in the Income Statement for the periods to June 2016 and December 2016 have been classified as Discontinued Operations and the corresponding assets and liabilities have been presented as assets classified as held for sale and liabilities directly associated with assets classified as held for sale in the Balance Sheet as at 31 December 2016.
OPERATIONAL AND FINANCIAL REVIEW
Introduction
Johnson Service Group has delivered another strong performance. This encouraging outcome reflects the progress we have made over the last five years or so to develop the Group, refocusing on its textile rental activities and subsequently expanding its activities in this area. The sale of the Drycleaning business in January completed this transition and leaves us wholly focused on textile rental services, consisting of workwear rental, and linen services to the hotel, restaurant and hospitality sectors.
Our acquisition and integration strategy has been key to the Group's successful growth, as is our ongoing investment programme. Together, they are driving synergy benefits, operational efficiencies and improved customer service within JSG. We will continue to expand our presence organically as well as through further acquisitions in our chosen marketplaces while striving to maintain the high service levels that help put us at the forefront of our industry.
Financial Results
The Group's continuing revenue for the six months to 30 June 2017 increased by 19.3% to GBP138.0 million (June 2016: GBP115.7 million). This was driven by strong organic growth of some 4.8% and a full six months of trading from the acquisitions completed in 2016. Adjusted operating profit increased by 20.0% to GBP18.6 million (June 2016: GBP15.5 million).
Adjusted profit before taxation increased to GBP16.8 million (June 2016: GBP13.6 million) after net finance costs of GBP1.8 million (June 2016: GBP1.9 million). The underlying tax rate was 19.4% (June 2016: 20.3%).
There were no exceptional items in the first half of 2017 (June 2016: GBP0.7 million). The statutory profit before tax after amortisation of intangible assets (excluding software amortisation) of GBP3.9 million (June 2016: GBP3.0 million) increased by 30.3% to GBP12.9 million (June 2016: GBP9.9 million).
Continuing adjusted fully diluted earnings per share increased by 15.6% to 3.7 pence (June 2016: 3.2 pence). Fully diluted earnings per share from continuing operations after amortisation of intangible assets (excluding software amortisation) and exceptional items increased to 2.8 pence (June 2016: 2.3 pence).
Dividend
Reflecting the Group's strong performance and prospects, the Board is pleased to increase the interim dividend by 12.5% to 0.9 pence (June 2016: 0.8 pence). This is in line with our progressive dividend policy, whilst also maintaining satisfactory dividend cover.
The interim dividend will be paid on 3 November 2017 to those Shareholders on the register of members at the close of business on 6 October 2017. The ex-dividend date is 5 October 2017.
Finances
Total net debt at 30 June 2017 was GBP90.0 million (December 2016: GBP98.2 million), slightly better than management expectations, and reflected the strong trading performance in the first half together with the receipt of proceeds from the sale of the Drycleaning business in January 2017. The Group's net debt to adjusted EBITDA leverage ratio was 1.7x at the end of June 2017.
The Group has a GBP120.0 million revolving credit bank facility which is considerably in excess of the anticipated level of borrowings, with comfortable cover on all bank covenants for the foreseeable future. The facility matures in April 2020.
Interest cover based on adjusted operating profit was 11.6 times (June 2016: 9.7 times), with interest costs on our floating rate borrowings continuing to benefit from the current low levels of LIBOR. Two hedging arrangements, each for GBP15.0 million of borrowings, are in place whereby LIBOR is replaced by a fixed rate of 1.4725% for the period January 2016 to January 2019 and 1.665% for the period January 2016 to January 2020. Two further hedging arrangements, each for GBP10.0 million, were entered into at the end of June 2016 whereby LIBOR is replaced by a fixed rate of 0.49% to June 2018 and 0.5525% to June 2019.
Pension Deficit
The recorded net deficit after tax for all post-employment benefit obligations, calculated in accordance with IAS 19R, has reduced to GBP7.9 million at June 2017 from GBP14.8 million at December 2016. The reduction is due, in part, to the higher than expected returns on scheme assets offset by the net impact of lower Corporate Bond yields and lower inflation on the valuation of scheme liabilities.
The current agreement with the Trustee of the defined benefit pension scheme requires deficit recovery payments of GBP1.9 million in the year to December 2017, of which GBP0.9 million was contributed during the first half. In addition to this agreed schedule of contributions a further payment of GBP1.5 million was made to the pension scheme in April 2017.
The triennial actuarial valuation of the defined benefit scheme as at 30 September 2016 has recently been finalised. Calculated under the more prudent technical provisions of the scheme the deficit has increased to GBP39.3 million. However given the additional contribution of GBP1.5 million referred to above, the Trustee has agreed that ongoing deficit funding contributions will remain at the current level of GBP1.9 million per annum.
Acquisition of Professional Laundry Services ("PLS")
After the period end, on 28 July 2017, we were pleased to add another well-established, high volume hotel linen business, through the acquisition of Clayfull Limited, which trades as PLS. The consideration was GBP6.6 million, on a debt free, cash free basis and subject to an adjustment for normalised working capital. We also purchased a freehold building used by PLS for an additional GBP1.25 million.
As reported in the management accounts for the year ended August 2016, the business generated revenue of GBP4.9 million and adjusted EBIT of GBP0.5 million.
Based in Bonnyrigg, south of Edinburgh, PLS predominantly services the high volume hotel linen market processing some 350,000 pieces of linen per week and employing 130 staff. It operates across much of Scotland and also in the North East of England and so establishes the Group with a presence in high volume hotel linen in these areas.
We see scope for further growth and are planning to invest approximately GBP0.8 million in a new fully integrated soiled linen sorting and automated bagging system to support expansion.
OPERATIONAL HIGHLIGHTS
Our Textile Rental business trades through a number of very well recognised brands which service the UK's Workwear and Hotel Restaurant and Catering ("HORECA") market sectors. The Group's 'Apparelmaster' brand predominantly provides workwear rental and laundry services to corporates across all industry sectors, 'Stalbridge' and 'London Linen' provide premium linen services to the restaurant, hospitality and corporate events market and 'Bourne' and 'Afonwen' provide high volume hotel linen services. Our newly acquired PLS brand will complement our existing Bourne and Afonwen brands.
The combined businesses performed very strongly throughout the first six months of the year generating revenue of GBP138.0 million (June 2016: GBP115.7 million), an increase of 19.3%. This GBP22.3 million increase includes an additional four months of trading from the acquisitions completed in 2016. We also saw strong underlying organic growth of some 4.8%, which included the benefit of price increases. There was a one-off benefit of approximately GBP1.0 million for work processed on behalf of a privately owned laundry, whose operations have been disrupted by a fire. This work is expected to continue until October 2017 and has resulted in additional, high margin throughput for both Stalbridge and Afonwen.
Adjusted operating profit from our Textile Rental businesses increased by GBP3.4 million to GBP20.7 million (June 2016: GBP17.3 million), representing an increase of 19.7%, with the operating margin remaining constant at 15.0% (June 2016: 15.0%). This was achieved despite the inclusion of a full six months of trading from the high volume hotel linen acquisitions completed in 2016, which traditionally generate a much lower margin during the first quarter of the year.
Apparelmaster, the UK's largest workwear brand, performed very strongly throughout the first six months of 2017 winning over 1,200 new customers (June 2016: 1,100) with average sales value to those customers increasing by some 6%. We re-signed a number of large national accounts and customer retention levels were maintained at over 95%, a similar level to last year.
The business faced higher operating costs in the period owing to the combined impact of the implementation of the National Living Wage ("NLW"), rising fuel costs and contributions towards the Government's Apprenticeship Levy. However, the additional revenue combined with strong cost control mitigated their impact.
We continue to actively manage Apparelmaster's increasing volumes by transferring customers between processing facilities in order to ensure optimal operational efficiencies. At the same time we progressed with its capital investment programme which will deliver further production efficiencies as well as increased capacity. The major refurbishments we are undertaking at the Letchworth and Brighton facilities are nearing completion and we have increased capacity at our Basingstoke facility. We will be starting a partial refit of the Uttoxeter site in the second half of the year.
In order to ensure that we continue to meet the ever increasing needs of our customers, we have adopted new tablet technology for all of our customer-facing staff. In particular a new online catalogue and automated sales quotation system have been put in place to provide our account managers with a more holistic view of each customer's account and further new IT driven developments are planned.
Our internal training and development facility (The Johnsons Academy) continues to improve the skill set of our workforce and foster the development of staff for future managerial positions. External training providers have been supporting the Academy in providing best practice service training techniques to ensure Apparelmaster maintains its reputation for service excellence in the industry.
Stalbridge enjoyed a very strong start to 2017, with both revenue and margin increasing substantially. This was helped by high customer retention rates and a 50% increase in new sales year-on-year.
Contract caterers and facilities management companies remain a core market for Stalbridge and the business renewed a number of long term agreements. These included a supply agreement with the Ministry of Defence where a large scale reorganisation of its 'soft service' supply across the country has already benefitted revenue growth at Stalbridge, with further opportunities expected to come through. A large number of Stalbridge's customer base are smaller operations within the premium hotel, restaurant and catering sub-sectors who are more discerning about quality and service. Stalbridge's flexible "no contract" terms play well in this marketplace and a particular area of growth has been through the emergence of independent and pub groups that are food and accommodation lead.
We continue to increase operating efficiencies at Stalbridge through ongoing investment in modern plant and equipment and realigning customers' work on a geographical basis. The Grantham site, acquired in November 2015, benefited from the installation of a new continuous batch washer, hydraulic press and high speed ironer line, while a new high speed sheet and duvet ironer line at our Glasgow facility, and the additional railing systems for the storage of extra new work and enhanced drying capacity for toweling products at our Sturminster site, have improved the operational performance of these plants.
Given the high levels of sales growth and the speed at which capacity has been reached at Grantham, we are now considering adding further processing capacity in the North West of England and also opportunities to service the London market more efficiently.
London Linen also increased revenue during the first six months of the year despite some early pricing pressures on major contracts when restauranteurs and catering companies were all facing significant cost pressures themselves due to NLW and property rates increases.
Operationally, the main focus of London Linen in the period was the completion of the GBP4.5 million capital investment programme at the Southall plant. The investment has delivered a new mezzanine floor containing highly automated conveyor systems, new ergonomically efficient sorting tables and an automated bag-loading system which transports soiled linen directly to two new continuous batch washers. Our capital investment programme was completed on schedule and has helped to reduce operating costs as well as increasing production capacity.
London Linen also commenced a programme to fully co-ordinate the sales and service functions of its London Linen and London Workwear brands. We believe that this initiative will enhance customer service and streamline product offerings to customers.
We are also pleased to report that we have secured a 17,000 square foot site in an adjoining building to London Linen's existing plant, which we plan to put into operational use at a cost of some GBP2.0 million. We should be able to achieve further benefits when this new unit is fully operational, currently planned for the first half of 2018.
Stalbridge and London Linen continue to work closely together in order to ensure that the respective businesses are utilising plant capacity efficiently and providing customers with optimal service levels and product.
Our high volume hotel linen offering operates under the Afonwen and Bourne brands, with PLS a newly added brand. Trading over the first six months has been very strong in terms of new sales and interest from potential new customers although, as we re-tendered, market pricing has been very challenging for large contracts, with competitors pricing to win volume. As a result, average prices are generally slightly down compared to the previous year. However, the benefits derived from operational savings and synergies have offset the pricing effect and we have maintained margins.
The management team continued to focus on improving transportation efficiencies, successfully transferring work for a number of customers to the most local laundry site. This not only generates cost savings but also improves our service delivery and reliability. At the same time, we have taken care to balance the output levels of each factory unit to optimise efficiency during the very busy summer months.
Over the period, we reorganised the sales and customer service activity at Afonwen and Bourne into a new national structure which is more streamlined and logistically more effective. This has been well received by our major national and regional hotel customer groups. The business has continued to retain a number of key national accounts and has also further expanded and developed its customer base, particularly across the corporate four star and budget hotel sectors.
The GBP3.5 million refit of the Chester site was successfully completed on time and to budget and has created a more modern and efficient plant. We have achieved a 30% improvement in pieces produced per operator whilst at the same time improving the quality and service in line with our expectations.
We are focusing strongly on operational performance, and in particular the use of scanning technology to ensure consistency of product and quality assurance. We have installed scanners across our Birmingham and Chester sites in the first half of this year which has led to improvements in customer perception and retention. We also want to ensure that all of our high volume linen operations are fully integrated, deploying best working practices across all sites. The integration journey is still ongoing and the next large project is a strategic review of linen purchasing across the Afonwen, Bourne and PLS brands so that we can standardise and improve the product specification for our customers and reduce purchasing costs by consolidating volumes.
TECHNICAL INNOVATION
We have started work on the in-house development of new operating systems for both the workwear and high volume hotel linen businesses. This project, which will incorporate the use of Microsoft Dynamics, is expected to take two years until full implementation and will further improve our operating systems and customer engagement.
EMPLOYEES
Our teams have worked with skill, enthusiasm and dedication and have helped to ensure that our customers receive market-leading service standards. We thank them for their significant contribution to another tremendous first half performance.
SUCCESSION
In a separate statement issued today, we also announce that after 33 years with the Group, Chris Sander, Chief Executive Officer, has informed the Board of his intention to retire in the first half of 2018. Chris is retiring at a time when the Group is in excellent shape and very well placed for continued growth.
OUTLOOK
The Board is continuing to invest in increasing the production capacity of the business in order to take advantage of market opportunities as they arise.
The acquisitions we have made over recent years, and the latest purchase of PLS, based in Scotland, have expanded our services over a wider geographical area and our integration strategy is enabling us to realise material distribution and synergy efficiencies. We have further to go in achieving national coverage and we will continue to consider new expansion opportunities. The addition of PLS, together with continuing strong performance across all our existing brands gives us confidence in the second half performance. We expect results for the full year to be slightly ahead of current market expectations.
Responsibility Statement
The condensed consolidated interim financial statements comply with the Disclosure and Transparency Rules ('DTR') of the United Kingdom's Financial Conduct 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, 'Interim Financial Reporting' 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 six months and description of principal risks and uncertainties for the remaining six months 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 PLC are listed in the Johnson Service Group PLC Annual Report for 2016. Details of the Directors are available on the Johnson Service Group PLC website: www.jsg.com
By order of the Board
Chris Sander Yvonne Monaghan Chief Executive Officer Chief Financial Officer 4 September 2017 4 September 2017
Forward Looking Statements
Certain statements in these condensed consolidated interim financial statements constitute forward-looking statements. Any statement in this document that is not a statement of historical fact including, without limitation, those regarding the Company's future expectations, operations, financial performance, financial condition and business is a forward-looking statement. Such forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially. These risks and uncertainties include, among other factors, changing economic, financial, business or other market conditions. These and other factors could adversely affect the outcome and financial effects of the plans and events described in these condensed consolidated interim financial statements. As a result you are cautioned not to place reliance on such forward-looking statements. Nothing in this document should be construed as a profit forecast.
Consolidated Income Statement
Half Half Year Year ended
year to 31 December
to 30 June 2016
30 June 2016 GBPm
Note 2017 GBPm
GBPm (Restated*)
Revenue from continuing operations 2 138.0 115.7 256.7
Operating profit 2 14.7 11.8 29.8
Operating profit before amortisation
of intangible
assets (excluding software
amortisation) and exceptional
items 18.6 15.5 37.7
Amortisation of intangible
assets
(excluding software amortisation) (3.9) (3.0) (6.9)
Exceptional items 3
- Costs in relation to business
acquisition activity - (0.9) (1.2)
- Pension costs - (0.3) (0.3)
- Profit on disposal of freehold
property - 0.5 0.5
Operating profit 2 14.7 11.8 29.8
Finance cost (1.6) (1.6) (3.3)
Notional pension interest (0.2) (0.3) (0.6)
------------------------------------- ------ -------- ------------ ------------
Total finance cost (1.8) (1.9) (3.9)
Profit before taxation 12.9 9.9 25.9
Taxation charge** 4 (2.5) (2.2) (5.0)
------------------------------------- ------ -------- ------------ ------------
Profit for the period from
continuing operations 10.4 7.7 20.9
Result for the period from
discontinued operations - 0.4 (0.3)
Profit for the period attributable
to equity holders 10.4 8.1 20.6
------------------------------------- ------ -------- ------------ ------------
Earnings per share
Basic earnings per share 7
From continuing operations 2.8p 2.3p 6.0p
From discontinued operations - 0.1p (0.1p)
From total operations 2.8p 2.4p 5.9p
------------------------------------- ------ -------- ------------ ------------
Fully diluted earnings per
share
From continuing operations 2.8p 2.3p 5.9p
From discontinued operations - 0.1p (0.1p)
From total operations 2.8p 2.4p 5.8p
------------------------------------- ------ -------- ------------ ------------
Adjusted basic earnings per
share
From continuing operations 3.7p 3.2p 7.7p
From discontinued operations - 0.1p 0.4p
From total operations 3.7p 3.3p 8.1p
------------------------------------- ------ -------- ------------ ------------
Adjusted fully diluted earnings
per share
From continuing operations 3.7p 3.2p 7.6p
From discontinued operations - 0.1p 0.4p
From total operations 3.7p 3.3p 8.0p
------------------------------------- ------ -------- ------------ ------------
The notes on pages 14 to 26 form an integral part of these condensed consolidated interim financial statements.
* The June 2016 Consolidated Income Statement has been restated to reflect the presentation of Drycleaning as a Discontinued Operation. See page 14 for further information.
** Including GBP0.7 million credit (June 2016: GBP0.6 million credit; December 2016 GBP1.5 million credit) relating to amortisation of intangible assets (excluding software amortisation) and GBPnil (June 2016: GBPnil; December 2016 GBP0.2 million credit) relating to exceptional items.
Consolidated Statement of Comprehensive Income
Half Half
year year
to to 30 Year ended
30 June June 31 December
2017 2016 2016
Note GBPm GBPm GBPm
Profit for the period 10.4 8.1 20.6
------------------------------------------------------------- ---- -------- ------ ------------
Items that will not be subsequently
reclassified to profit or loss
Re-measurement and experience
gains / (losses) on
- post-employment benefit obligations 8 6.2 1.5 (3.5)
Taxation in respect of re-measurement
- and experience (gains) / losses (1.2) (0.3) 0.6
Change in deferred tax due
- to change in tax rate - - (0.1)
Items that may be subsequently
reclassified to profit or loss
Cash flow hedges - fair value
- (net of taxation) loss (0.2) (0.7) (0.4)
- transfers
to operating
profit - 0.2 0.2
- transfers
to finance cost 0.2 0.1 0.3
------------------------------ ----------------------------- ---- -------- ------ ------------
Other comprehensive income
/ (loss) for the period 5.0 0.8 (2.9)
------------------------------------------------------------- ---- -------- ------ ------------
Total comprehensive income
for the period 15.4 8.9 17.7
------------------------------------------------------------- ---- -------- ------ ------------
Consolidated Statement of Changes in Shareholders' Equity
Share Share Hedge Other Retained Total
Capital Premium Reserve Reserves* Earnings Equity
GBPm GBPm GBPm GBPm GBPm GBPm
Balance at 1 January
2016 33.1 14.5 (0.8) 2.2 57.8 106.8
-------------------------- --------- --------- --------- ----------- ---------- --------
Profit for the period - - - - 8.1 8.1
Other comprehensive
(loss) / income for
the period - - (0.4) - 1.2 0.8
-------------------------- --------- --------- --------- ----------- ---------- --------
Total comprehensive
(loss) / income for
the period - - (0.4) - 9.3 8.9
-------------------------- --------- --------- --------- ----------- ---------- --------
Share options (value
of employee services) - - - - 0.4 0.4
Issue of share capital
(net of costs) 3.3 0.1 - - 25.4 28.8
Dividend paid - - - - (4.8) (4.8)
-------------------------- --------- --------- --------- ----------- ---------- --------
Transactions with
Shareholders
recognised directly
in Shareholders' equity 3.3 0.1 - - 21.0 24.4
-------------------------- --------- --------- --------- ----------- ---------- --------
Balance at 30 June
2016 36.4 14.6 (1.2) 2.2 88.1 140.1
-------------------------- --------- --------- --------- ----------- ---------- --------
Profit for the period - - - - 12.5 12.5
Other comprehensive
income / (loss) for
the period - - 0.5 - (4.2) (3.7)
-------------------------- --------- --------- --------- ----------- ---------- --------
Total comprehensive
income for the period - - 0.5 - 8.3 8.8
-------------------------- --------- --------- --------- ----------- ---------- --------
Share options (value
of employee services) - - - - 0.4 0.4
Current tax on share
options - - - - 0.2 0.2
Issue of share capital
(net of costs) 0.1 0.4 - - - 0.5
Dividend paid - - - - (2.9) (2.9)
-------------------------- --------- --------- --------- ----------- ---------- --------
Transactions with
Shareholders
recognised directly
in Shareholders' equity 0.1 0.4 - - (2.3) (1.8)
-------------------------- --------- --------- --------- ----------- ---------- --------
Balance at 31 December
2016 36.5 15.0 (0.7) 2.2 94.1 147.1
-------------------------- --------- --------- --------- ----------- ---------- --------
Profit for the period - - - - 10.4 10.4
Other comprehensive
income for the period - - - - 5.0 5.0
-------------------------- --------- --------- --------- ----------- ---------- --------
Total comprehensive
income for the period - - - - 15.4 15.4
-------------------------- --------- --------- --------- ----------- ---------- --------
Share options (value
of employee services) - - - - 0.3 0.3
Current tax on share
options - - -- - 0.2 0.2
Issue of share capital
(net of costs) 0.1 0.2 - - - 0.3
Purchase of shares
by EBT** - - - - (0.1) (0.1)
Dividend paid - - - - (6.2) (6.2)
-------------------------- --------- --------- --------- ----------- ---------- --------
Transactions with
Shareholders
recognised directly
in Shareholders' equity 0.1 0.2 - - (5.8) (5.5)
-------------------------- --------- --------- --------- ----------- ---------- --------
Balance at 30 June
2017 36.6 15.2 (0.7) 2.2 103.7 157.0
-------------------------- --------- --------- --------- ----------- ---------- --------
* Other Reserves comprise a GBP1.6 million Merger Reserve and a GBP0.6 million Capital Redemption Reserve.
** The Group has an Employee Benefit Trust (EBT), to administer share plans and to acquire shares, using funds controlled by the Group, to meet commitments to employee share schemes.
Consolidated Balance Sheet
As at As at As at
30 June 30 June 31 December
2017 2016 2016
GBPm GBPm GBPm
Note
Non-current assets
Goodwill 115.6 124.4 115.6
Intangible assets 44.0 52.1 47.9
Property, plant and equipment 82.2 82.9 81.7
Textile rental items 45.0 43.5 44.1
Trade and other receivables 0.3 0.4 0.3
Deferred income tax assets 2.2 3.1 4.2
289.3 306.4 293.8
------------------------------------ ------ -------- -------- ------------
Current assets
Inventories 2.4 2.7 2.2
Trade and other receivables 46.5 48.5 43.3
Cash and cash equivalents 6.5 5.4 2.9
Assets classified as held
for sale - - 17.2
55.4 56.6 65.6
------------------------------------ ------ -------- -------- ------------
Current liabilities
Trade and other payables 61.3 66.1 60.6
Current income tax liabilities 3.9 4.0 4.3
Borrowings 24.5 17.9 19.9
Derivative financial liabilities 0.3 - 0.3
Provisions 2.2 4.6 1.9
Liabilities directly associated
with assets classified as
held for resale - - 9.4
------------------------------------ ------ -------- -------- ------------
92.2 92.6 96.4
------------------------------------ ------ -------- -------- ------------
Non-current liabilities
Post-employment benefit obligations 8 9.7 13.7 18.2
Deferred income tax liabilities 8.1 10.1 10.0
Trade and other payables 2.6 3.2 2.3
Borrowings 72.0 96.4 82.0
Derivative financial liabilities 0.5 1.4 0.5
Provisions 2.6 5.5 2.9
95.5 130.3 115.9
------------------------------------ ------ -------- -------- ------------
NET ASSETS 157.0 140.1 147.1
------------------------------------ ------ -------- -------- ------------
Capital and reserves attributable
to the company's shareholders
Share capital 10 36.6 36.4 36.5
Share premium 15.2 14.6 15.0
Hedge reserve (0.7) (1.2) (0.7)
Other reserves 2.2 2.2 2.2
Retained earnings 103.7 88.1 94.1
------------------------------------ ------ -------- -------- ------------
TOTAL EQUITY 157.0 140.1 147.1
------------------------------------ ------ -------- -------- ------------
* Other Reserves comprise a GBP1.6 million Merger Reserve and a GBP0.6 million Capital Redemption Reserve.
The notes on pages 14 to 26 form an integral part of these condensed consolidated interim financial statements. The condensed consolidated interim financial statements on pages 10 to 26 were approved by the Board of Directors on 4 September 2017 and signed on its behalf by:
Yvonne Monaghan
Chief Financial Officer
Consolidated Statement of Cash Flows
Half Half year Year ended
year to 31 December
to 30 June 2016
30 June 2016 GBPm
Note 2017 GBPm
GBPm (Restated*)
Cash flows from operating
activities
Profit for the period 10.4 8.1 20.6
Adjustments for:
Taxation
charge - continuing operations 4 2.5 2.2 5.0
- discontinued operations - 0.1 0.6
Total
finance
cost - continuing operations 1.8 1.9 3.9
- discontinued operations - 0.1 0.1
Depreciation of tangible
fixed assets 23.3 19.9 44.5
Amortisation of intangible
fixed assets 4.0 3.1 7.1
Revaluation of assets classified
as held for sale - - 2.0
Profit on sale of tangible
fixed assets - (0.3) -
(Increase) / decrease in
inventories (0.2) 0.3 0.4
(Increase) / decrease in
trade and other receivables (2.3) (0.8) 0.8
Increase in trade and other
payables 1.6 3.0 0.9
Costs in relation to business
acquisition activity - 0.9 1.2
Deficit recovery payments in
respect of post-employment benefit
obligations (2.4) (0.9) (1.9)
Share-based payments 0.3 0.4 0.8
Post-employment benefit
obligations (0.1) (0.1) (0.1)
Decrease in provisions - (2.4) (4.4)
---------------------------------------- ------ -------- ------------ ------------
Cash generated from operations 38.9 35.5 81.5
Interest paid (1.5) (1.6) (3.0)
Taxation paid (3.9) (1.9) (5.9)
---------------------------------------- ------ -------- ------------ ------------
Net cash generated from
operating activities 33.5 32.0 72.6
---------------------------------------- ------ -------- ------------ ------------
Cash flows from investing
activities
Acquisition of business
(net of cash and cash equivalents
acquired) 11 - (57.2) (58.0)
Proceeds from sale of business
(net of cash disposed) 12 6.0 - -
Purchase of property, plant
and equipment (7.0) (5.1) (15.5)
Proceeds from sale of property,
plant and equipment 0.1 0.6 0.6
Purchase of intangible assets - (0.1) -
Purchase of textile rental
items (19.4) (16.9) (34.5)
Proceeds received in respect
of special charges 1.2 1.5 2.7
Net cash used in investing
activities (19.1) (77.2) (104.7)
---------------------------------------- ------ -------- ------------ ------------
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from borrowings 54.0 68.0 88.0
Repayments of borrowings (62.0) (43.3) (69.3)
Capital element of finance
leases (2.5) (2.6) (5.3)
Purchase of own shares by
EBT (0.1) - -
Net proceeds from issue
of Ordinary shares 0.3 28.8 29.3
Dividend paid (6.2) (4.8) (7.7)
Net cash generated from
financing activities (16.5) 46.1 35.0
---------------------------------------- ------ -------- ------------ ------------
Net (decrease) / increase
in cash and cash equivalents (2.1) 0.9 2.9
Cash and cash equivalents
at beginning of period (1.5) (4.4) (4.4)
---------------------------------------- ------ -------- ------------ ------------
Cash and cash equivalents
at end of period 14 (3.6) (3.5) (1.5)
---------------------------------------- ------ -------- ------------ ------------
Cash and cash equivalents
comprise:
Cash 6.5 5.4 2.9
Overdraft (10.1) (8.9) (5.2)
Within assets classified
as held for sale - - 0.8
---------------------------------------- ------ -------- ------------ ------------
Cash and cash equivalents
at end of the period (3.6) (3.5) (1.5)
---------------------------------------- ------ -------- ------------ ------------
The notes on pages 14 to 26 form an integral part of these condensed consolidated interim financial statements.
* The June 2016 Consolidated Statement of Cash Flows has been restated to reflect the presentation of Drycleaning as a Discontinued Operation. See page 14 for further information.
Notes to the Condensed Consolidated Interim Financial Statements
Johnson Service Group PLC (the 'Company') and its subsidiaries (together 'the Group') provide textile rental and related services across the UK.
The Company is incorporated and domiciled in the UK, its registered number is 523335 and the address of its registered office is Johnson House, Abbots Park, Monks Way, Preston Brook, Cheshire, WA7 3GH. The Company is a public limited company and has its primary listing on the AIM division of the London Stock Exchange.
The condensed consolidated interim financial statements were authorised for issue by the Board on 4 September 2017.
1 Basis of preparation
These condensed consolidated interim financial statements of the Group are for the six months ended 30 June 2017. They have been prepared in accordance with the Disclosure and Transparency Rules of the Financial Conduct Authority and with IAS 34, 'Interim Financial Reporting', as adopted by the European Union.
The condensed consolidated interim financial statements have not been reviewed nor audited, nor do they comprise statutory accounts for the purpose of 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 2016 consolidated financial statements, which have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union.
Other than as set out in note 19, financial information for the year ended 31 December 2016 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, did not contain an emphasis of matter paragraph and did not contain a statement under Section 498 of the Companies Act 2006.
Other than as described within note 19, financial information for the half year ended 30 June 2016 included herein is derived from the condensed consolidated interim financial statements for that period.
Going Concern
The Group currently meets its day-to-day working capital requirements through committed bank facilities which run to April 2020. Current economic conditions continue to create uncertainty, particularly over the level of demand for the Group's services. The Group's latest forecasts and projections, taking account of reasonably possible changes in trading performance, show that there is not a substantial doubt that the Group should be able to operate within the level of its current facilities for a period of at least 12 months from the date of these condensed consolidated interim financial statements.
As a consequence, and having reassessed the principal risks and uncertainties, the Directors considered it appropriate to adopt the going concern basis of accounting in preparing the condensed consolidated interim financial information.
Discontinued operations
The Consolidated Income Statement for the period ended 30 June 2016 has been restated, as shown below, to reflect the Drycleaning reporting segment being presented as a Discontinued Operation. The Consolidated Statement of Cash Flows for the same period has also been restated to analyse the income tax charge and finance income and expense between continuing and discontinued operations.
The presentation of Drycleaning as a Discontinued Operation does not impact the Consolidated Statement of Comprehensive Income, Consolidated Statement of Changes in Shareholders Equity or Consolidated Balance Sheet.
As
Previously As
Half year to 30 June Reported Adjustment Restated
2016 GBPm GBPm GBPm
REVENUE 137.6 (21.9) 115.7
OPERATING PROFIT BEFORE
AMORTISATION
OF INTANGIBLE ASSETS (EXCLUDING
SOFTWARE AMORTISATION)
AND EXCEPTIONAL ITEMS 16.1 (0.6) 15.5
Amortisation of intangible
assets (3.0) - (3.0)
Exceptional items:
- Costs in relation
to business acquisition
activity (0.9) - (0.9)
- Pension costs (0.3) - (0.3)
- Profit on freehold
property disposal 0.5 - 0.5
OPERATING PROFIT 12.4 (0.6) 11.8
Total finance cost (2.0) 0.1 (1.9)
Profit before taxation 10.4 (0.5) 9.9
Taxation (2.3) 0.1 (2.2)
------------------------------------ ------------ ----------- ----------
Profit for the year
from continuing operations 8.1 (0.4) 7.7
------------------------------------ ------------ ----------- ----------
Profit for the year
from discontinued operations - 0.4 0.4
------------------------------------ ------------ ----------- ----------
Profit for the period
attributable to equity
holders 8.1 - 8.1
----------------------------------- ------------ ----------- ----------
2 SEGMENT ANALYSIS
Segment information is presented in respect of the Group's operating segments, which are based on the Group's management and internal reporting structure as at 30 June 2017. These segments are the same as those included within the 2016 Annual Report. The chief operating decision-maker has been identified as the Board of Directors (the 'Board'). The Board reviews the Group's internal reporting in order to assess performance and allocate resources. The Board determines the operating segments based on these reports and on the internal reporting structure. For reporting purposes, in accordance with IFRS 8, the Board aggregates operating segments with similar economic characteristics and conditions into reporting segments, which form the basis of reporting in the Interim and Annual Reports.
The Board assesses the performance of the reporting segments based on a measure of operating profit, both including and excluding the effects of non-recurring items from the reporting segments, such as restructuring costs and impairments when the impairment is the result of an isolated, non-recurring or non-operating event. Interest income and expenditure are not included in the result for each reporting segment that is reviewed by the Board. Segment results include items directly attributable to a segment as well as those that can be allocated on a reasonable basis, for example, rental income received by Johnson Group Properties PLC is credited back, where appropriate, to the paying company for the purposes of segment reporting. There have been no changes in measurement methods used compared to the prior year.
Other information provided to the Board is measured in a manner consistent with that in the financial statements. Segment assets exclude deferred income tax assets, current income tax assets and cash and cash equivalents, all of which are managed on a central basis. Segment liabilities include non-bank borrowings, but exclude deferred income tax liabilities, current income tax liabilities, bank borrowings and derivative financial liabilities all of which are managed on a central basis. These balances form part of the reconciliation to total assets and liabilities.
The reporting segment results for the half year ended 30 June 2017, together with comparative figures, are as follows:
All
Half year to 30 June Textile Other
2017 Rental Segments Total
GBPm GBPm GBPm
REVENUE
Continuing 138.0 - 138.0
Discontinued -
------------------------------------------------------------ ------------- -------- ---------- ----------
Total Revenue 138.0
------------------------------------------------------------ ------------- -------- ---------- ----------
RESULT
OPERATING PROFIT / (LOSS)
BEFORE AMORTISATION
OF INTANGIBLE ASSETS (EXCLUDING
SOFTWARE AMORTISATION) 20.7 (2.1) 18.6
Amortisation of intangible
assets (excluding software
amortisation) (3.9) - (3.9)
OPERATING PROFIT /
(LOSS) 16.8 (2.1) 14.7
Total finance cost (1.8)
Profit before taxation 12.9
Taxation (2.5)
------------------------------------------------------------ ------------- -------- ---------- ----------
Profit for the period
attributable to equity
holders 10.4
------------------------------------------------------------- ------------- -------- ---------- --------
All
Discontinued Textile Other
Operations Rental Segments Total
GBPm GBPm GBPm GBPm
BALANCE SHEET INFORMATION
Segment assets 1.0 333.7 1.3 336.0
Unallocated assets:
Deferred income tax
assets 2.2
Cash and cash equivalents 6.5
------------------------------------------------------------ ------------- -------- ---------- ----------
Total assets 344.7
------------------------------------------------------------ ------------- -------- ---------- ----------
Segment liabilities (4.1) (72.9) (3.6) (80.6)
Unallocated liabilities:
Bank borrowings (84.6)
Current income tax
liabilities (3.9)
Deferred income tax
liabilities (8.1)
Derivative financial
liabilities (0.8)
Post-employment benefit
obligations (9.7)
Total liabilities (187.7)
------------------------------------------------------------ ------------- -------- ---------- ----------
OTHER INFORMATION
Non-current asset additions
- Property, plant and
equipment - 6.5 - 6.5
- Textile rental items - 19.6 - 19.6
Depreciation and amortisation
expense
- Property, plant and
equipment - 5.8 0.1 5.9
- Textile rental items - 17.4 - 17.4
- Intangible software - 0.1 - 0.1
- Customer contracts - 3.9 - 3.9
All
Half year to 30 June Textile Other
2016 (restated) Rental Segments Total
GBPm GBPm GBPm
REVENUE
Continuing 115.7 - 115.7
Discontinued 21.9
----------------------------------------------------------------- ------------- -------- ---------- ----------
Total Revenue 137.6
----------------------------------------------------------------- ------------- -------- ---------- ----------
RESULT
OPERATING PROFIT / (LOSS)
BEFORE AMORTISATION
OF INTANGIBLE ASSETS (EXCLUDING
SOFTWARE AMORTISATION)
AND EXCEPTIONAL ITEMS 17.3 (1.8) 15.5
Amortisation of intangible
assets (excluding software
amortisation) (3.0) - (3.0)
Exceptional items:
- Costs in relation
to business acquisition
activity (0.9) - (0.9)
- Pension costs - (0.3) (0.3)
- Profit on freehold
property disposal 0.5 - 0.5
OPERATING PROFIT /
(LOSS) 13.9 (2.1) 11.8
Total finance cost (1.9)
Profit before taxation 9.9
Taxation (2.2)
----------------------------------------------------------------- ------------- -------- ---------- ----------
Profit for the period
from continuing operations 7.7
Profit for the period
from discontinued operations 0.4
----------------------------------------------------------------- ------------- -------- ---------- --------
Profit for the period
attributable to equity
holders 8.1
----------------------------------------------------------------- ------------- -------- ---------- --------
All
Discontinued Textile Other
Operations Rental Segments Total
GBPm GBPm GBPm GBPm
BALANCE SHEET INFORMATION
Segment assets 18.6 333.1 2.8 354.5
Unallocated assets: Deferred
income tax assets 3.1
Cash and cash equivalents 5.4
------------------------------------------------------------ --- ------------- -------- ---------- ----------
Total assets 363.0
------------------------------------------------------------ --- ------------- -------- ---------- ----------
Segment liabilities (16.5) (75.8) (4.3) (96.6)
Unallocated liabilities:
Bank borrowings (97.1)
Current income tax
liabilities (4.0)
Deferred income tax
liabilities (10.1)
Derivative financial
liabilities (1.4)
Post-employment benefit
obligations (13.7)
------------------------------------------------------------ --- ------------- -------- ---------- ----------
Total liabilities (222.9)
------------------------------------------------------------ --- ------------- -------- ---------- ----------
OTHER INFORMATION
Non-current additions
- Property, plant and
equipment 0.4 4.2 0.3 4.9
- Textile rental items - 15.9 - 15.9
- Intangible software - 0.1 - 0.1
Depreciation and amortisation
expense
- Property, plant and
equipment 0.7 4.4 0.1 5.2
- Textile rental items - 14.7 - 14.7
- Intangible software - 0.1 - 0.1
- Customer contracts - 3.0 - 3.0
All
Year ended 31 December Textile Other
2016 Rental Segments Total
GBPm GBPm GBPm
REVENUE
Continuing 256.7 - 256.7
Discontinued 44.3
----------------------------------------------------- ---- ------------- -------- ---------- ---------------
Total Revenue 301.0
----------------------------------------------------- ---- ------------- -------- ---------- ---------------
RESULT
OPERATING PROFIT / (LOSS)
BEFORE AMORTISATION
OF INTANGIBLE ASSETS (EXCLUDING
SOFTWARE AMORTISATION)
AND EXCEPTIONAL ITEMS 41.7 (4.0) 37.7
Amortisation of intangible
assets
(excluding software amortisation) (6.9) - (6.9)
Exceptional items:
- Costs in relation to
business acquisition activity (1.2) - (1.2)
- Pension costs - (0.3) (0.3)
- Profit on disposal
of freehold property 0.5 - 0.5
OPERATING PROFIT / (LOSS) 34.1 (4.3) 29.8
Finance cost (3.9)
Profit before taxation 25.9
Taxation (5.0)
----------------------------------------------------------- ------------- -------- ---------- ---------------
Profit for the period
from continuing operations 20.9
Result for the period
from discontinued operations (0.3)
----------------------------------------------------------- ------------- -------- ---------- ---------------
Profit for the period
attributable to equity
holders 20.6
----------------------------------------------------------- ------------- -------- ---------- ---------------
All
Discontinued Textile Other
Operations Rental Segments Total
GBPm GBPm GBPm GBPm
BALANCE SHEET INFORMATION
Segment assets 17.2 334.0 1.1 352.3
Unallocated assets:
Deferred income tax
assets 4.2
Cash and cash
equivalents 2.9
---------------------------------------------------- ----- ------------- -------- ---------- ---------------
Total assets 359.4
---------------------------------------------------- ----- ------------- -------- ---------- ---------------
Segment liabilities (13.7) (74.6) (3.2) (91.5)
Unallocated liabilities:
Bank borrowings (87.5)
Current income tax
liabilities (4.3)
Deferred income
tax
liabilities (10.0)
Derivative
financial
liabilities (0.8)
Post-employment benefit
obligations (18.2)
----------------------------------------------------------- ------------- -------- ---------- ---------------
Total liabilities (212.3)
---------------------------------------------------- ----- ------------- -------- ---------- ---------------
OTHER INFORMATION
Non-current additions
- Property, plant
and equipment 0.7 14.9 - 15.6
- Textile rental items - 35.4 - 35.4
Depreciation and amortisation
expense
- Property, plant
and equipment 1.4 10.4 0.3 12.1
- Textile rental items - 32.4 - 32.4
- Intangible software - 0.2 - 0.2
- Customer contracts - 6.9 - 6.9
3 EXCEPTIONAL ITEMS
Half year Half Year ended
to year 31 December
30 June to 2016
2017 30 June
2016
Continuing operations GBPm GBPm GBPm
Costs in relation to business
acquisition activity - (0.9) (1.2)
Pension costs - (0.3) (0.3)
Profit on disposal of freehold
property - 0.5 0.5
-------------------------------- ------------ --------- -------------
Total exceptional items - (0.7) (1.0)
-------------------------------- ------------ --------- -------------
Current year exceptional items
There are no exceptional items in the period to 30 June 2017.
Prior year exceptional items
Costs in relation to business acquisition activity
During the period to 31 December 2016, professional fees of GBP0.6 million, of which GBP0.4m related to the period to 30 June 2016, and Stamp Duty of GBP0.3 million, all of which related to the period to 30 June 2016, were paid relating to the acquisitions of Zip Textiles (Services) Limited, Chester Laundry Limited and Portgrade Limited, the parent company of Afonwen Laundry Limited. In addition, costs of GBP0.3 million, of which GBP0.2m related to the period to 30 June 2016, were incurred as part of the ongoing restructuring and integration of recent acquisitions.
Pension costs
During the period to 30 June 2016, professional fees of GBP0.3 million were incurred in respect of liability management exercises in relation to the defined benefit pension scheme.
Profit on disposal of freehold property
A former Textile Rental site in Leeds that was closed in 2015 was disposed of during the period for net proceeds of GBP0.5 million. The carrying value was previously written down to GBPnil in 2014.
4 TAXATION
Half Half Year ended
year year 31 December
to to 2016
Continuing Operations 30 June 30 June GBPm
2017 2016
GBPm GBPm
Current tax
UK corporation tax charge
for the period 3.6 3.1 7.3
Adjustment in relation to
previous periods - - (0.1)
----------------------------------- --------- --------- -------------
Current tax charge for the
period 3.6 3.1 7.2
Deferred tax
Origination and reversal
of temporary differences (1.1) (0.9) (1.8)
Changes in statutory tax
rate - - (0.3)
Adjustment in relation to
previous years - - (0.1)
Deferred tax credit for the
period (1.1) (0.9) (2.2)
----------------------------------- --------- --------- -------------
Total charge for taxation
included in the income statement 2.5 2.2 5.0
----------------------------------- --------- --------- -------------
Taxation in relation to amortisation of intangible assets (excluding software amortisation) has reduced the charge for taxation on continuing operations in the current period by GBP0.7 million (June 2016: GBP0.6 million reduction in the charge; December 2016: GBP1.5 million reduction in the charge). Taxation in relation to exceptional items in the current period relating to continuing operations is GBPnil (June 2016: GBPnil; December 2016: GBP0.2 million reduction in the charge).
During the period, a GBP0.2 million credit relating to current taxation (June 2016: GBPnil credit; December 2016 GBP0.2 million credit) has been recognised directly in Shareholders' equity.
Reconciliation of effective tax rate
Taxation on non-exceptional items for the six months to 30 June 2017 is calculated based on the estimated average annual effective tax rate (excluding prior year items) of 19.4% (June 2016: 20.3%; December 2016: 20.7%). This compares to the weighted average tax rate expected to be enacted or substantively enacted at the balance sheet date of 19.25% (June 2016: 20.00%; December 2016: 20.00%). Taxation on exceptional items is calculated based on the actual tax charge or credit for each specific item.
Differences between the estimated average annual effective tax rate and statutory rate include, but are not limited to, the effect of non-deductible expenses and the effect of tax losses utilised. The adjustment for under or over provisions in previous years is recognised when the amounts are agreed.
4 TAXATION (continued)
Changes to UK corporation tax rate
Changes to the UK corporation tax rates were announced on 8 July 2015. These changes, which proposed to reduce the main rate to 19% from 1 April 2017 and to 18% from 1 April 2020, were substantively enacted as part of Finance Bill 2015 on 26 October 2015. A further change to reduce the rate from 1 April 2020 from 18% to 17% was announced on 16 March 2016. This change was substantively enacted as part of Finance Bill 2016 on 15 September 2016.
Deferred income taxes at the balance sheet date have been measured at the tax rate expected to be applicable at the date the deferred income tax assets and liabilities are realised. Management has performed an assessment, for all material deferred income tax assets and liabilities, to determine the period over which the deferred income tax assets and liabilities are forecast to be realised, which has resulted in an average deferred income tax rate of 18.5% being used to measure all deferred tax balances as at 30 June 2017 (June 2016: 19.0%; December 2016 18.5%).
5 ADJUSTED PROFIT BEFORE AND AFTER TAXATION
Half Half Year
year year ended
to to 31 December
30 June 30 June 2016
Continuing operations 2017 2016 GBPm
GBPm GBPm
(Restated)
Profit before taxation 12.9 9.9 25.9
Amortisation of intangible assets
(excluding software amortisation) 3.9 3.0 6.9
Costs in relation to business
acquisition activity - 0.9 1.2
Pension costs - 0.3 0.3
Profit on freehold property
disposal - (0.5) (0.5)
Adjusted profit before taxation 16.8 13.6 33.8
Taxation on adjusted profit (3.2) (2.8) (6.7)
------------------------------------ --------- ------------ -------------
Adjusted profit after taxation 13.6 10.8 27.1
------------------------------------ --------- ------------ -------------
6 DIVIDS
Half Half Year
year year ended
to to 31 December
30 June 30 June 2016
2017 2016
Dividend per share (pence)
2017 Interim dividend proposed 0.9 - -
2016 Interim dividend proposed
and paid - 0.8 0.8
2016 Final dividend proposed
and paid - - 1.7
-------------------------------- --------- --------- -------------
0.9 0.8 2.5
-------------------------------- --------- --------- -------------
Half Half Year
year year ended
to to 31 December
30 June 30 June 2016
2017 2016
Shareholders' funds committed
(GBPm)
2017 Interim dividend proposed 3.3 - -
2016 Interim dividend proposed
and paid - 2.9 2.9
2016 Final dividend proposed
and paid - - 6.2
On 9 May 2017 a final dividend of 1.7 pence per share in respect of 2016 was paid to Shareholders, utilising GBP6.2 million of Shareholders' funds.
The Directors are proposing an interim dividend in respect of the year ended 31 December 2017 of 0.9 pence which will reduce Shareholders' funds by GBP3.3 million. The dividend will be paid on 3 November 2017 to Shareholders on the register of members at the close of business on 6 October 2017. The trustee of the EBT has waived the entitlement to receive dividends on the Ordinary shares held by the trust.
In accordance with IAS 10 there is no payable recognised at 30 June 2017 in respect of this proposed dividend.
7 EARNINGS PER SHARE
Half Half Year
year year ended
to to
30 June 30 31 December
June
2017 2016 2016
(Restated)
GBPm GBPm GBPm
Profit for the period from continuing
operations attributable to Shareholders 10.4 7.7 20.9
Profit / (loss) for the period from
discontinued operations attributable
to shareholders - 0.4 (0.3)
Amortisation of intangible assets
from continuing operations (net
of taxation) 3.2 2.4 5.4
Impairment of assets classified
as held for sale - - 2.0
Exceptional items from continuing
operations (net of taxation) - 0.7 0.8
Exceptional items from discontinued
operations (net of taxation) - - (0.3)
Adjusted profit attributable to
Shareholders relating to continuing
activities 13.6 10.8 27.1
Adjusted loss attributable to Shareholders
relating to discontinued activities - 0.4 1.4
--------------------------------------------- ----------- ------------- --------------
Adjusted profit attributable to
Shareholders 13.6 11.2 28.5
--------------------------------------------- ----------- ------------- --------------
Number Number Number
of shares of shares of shares
Weighted average number of Ordinary
shares 365.9m 340.9m 352.5m
Potentially dilutive options* 2.7m 4.0m 4.4m
--------------------------------------------- ----------- ------------- --------------
Fully diluted number of Ordinary
shares 368.6m 344.9m 356.9m
--------------------------------------------- ----------- ------------- --------------
Pence Pence
Pence per per
Basic earnings per share per share share share
--------------------------------------------- ----------- ------------- --------------
From continuing operations 2.8p 2.3p 6.0p
From discontinued operations - 0.1p (0.1p)
--------------------------------------------- ----------- ------------- --------------
From continuing and discontinued
operations 2.8p 2.4p 5.9p
Adjustment for amortisation of intangibles
assets (continuing operations) 0.9p 0.7p 1.5p
Impairment of assets classified
as held for sale (discontinued operations) - - 0.6p
Adjustment for exceptional items
(continuing operations) - 0.2p 0.2p
Adjustment for exceptional items
(discontinued operations) - - (0.1p)
Adjusted basic earnings per share
(continuing operations) 3.7p 3.2p 7.7p
Adjusted basic earnings per share
(discontinued operations) - 0.1p 0.4p
--------------------------------------------- ----------- ------------- --------------
Adjusted basic earnings per share
from continuing and discontinued
operations 3.7p 3.3p 8.1p
--------------------------------------------- ----------- ------------- --------------
Diluted earnings per share
--------------------------------------------- ----------- ------------- --------------
From continuing operations 2.8p 2.3p 5.9p
From discontinued operations - 0.1p (0.1p)
--------------------------------------------- ----------- ------------- -------------- From continuing and discontinued operations 2.8p 2.4p 5.8p --------------------------------------------- ----------- ------------- -------------- Adjustment for amortisation of intangibles assets (continuing operations) 0.9p 0.7p 1.5p Impairment of assets classified as held for sale (discontinued operations) - - 0.6p Adjustment for exceptional items (continuing operations) - 0.2p 0.2p Adjustment for exceptional items (discontinued operations) - - (0.1p) Adjusted diluted earnings per share (continuing operations) 3.7p 3.2p 7.6p Adjusted diluted earnings per share (discontinued operations) - 0.1p 0.4p --------------------------------------------- ----------- ------------- -------------- Adjusted diluted earnings per share from continuing and discontinued operations 3.7p 3.3p 8.0p --------------------------------------------- ----------- ------------- --------------
* Includes outstanding share options granted to employees.
Basic earnings per share is calculated using the weighted average number of Ordinary shares in issue during the period, excluding those held by the Employee Benefit Trust, based on the profit for the year attributable to Shareholders.
Adjusted earnings per share figures are given to exclude the effects of amortisation of intangible assets (excluding software amortisation) and exceptional items, all net of taxation, and are considered to show the underlying performance of the Group.
For diluted earnings per share, the weighted average number of Ordinary shares in issue is adjusted to assume conversion of all potentially dilutive Ordinary shares. The Company has potentially dilutive Ordinary shares arising from share options granted to employees where the exercise price is less than the average market price of the Company's Ordinary shares during the period.
Potential Ordinary shares are dilutive at the point, from a continuing operations level, when their conversion to Ordinary shares would decrease earnings per share or increase loss per share from continuing operations. For all periods, potential Ordinary shares have been treated as dilutive, as their inclusion in the diluted earnings per share calculation decreases earnings per share from continuing operations.
There were no events occurring after the balance sheet date that would have changed significantly the number of Ordinary shares or potentially dilutive Ordinary shares outstanding at the balance sheet date if those transactions had occurred before the end of the reporting period.
8 RETIREMENT BENEFIT OBLIGATIONS
The Group has applied the requirements of IAS 19R, 'Employee Benefits' to its employee pension schemes and post-employment healthcare benefits.
In the six months to 30 June 2017 deficit recovery payments of GBP0.9 million were paid by the Group to the defined benefit scheme (June 2016: GBP0.9 million; December 2016: GBP1.9 million). In addition, a further, one off, deficit recovery payment of GBP1.5million was made in April 2017.
Following discussions with the Group's appointed actuary a re-measurement gain of GBP6.2 million has been recognised in the period to 30 June 2017. This is principally as a result of asset returns over the period being GBP4.4 million higher than previously assumed, and experience gain on liabilities of GBP2.2 million offset by an increase in liabilities due to changes in financial assumptions of GBP0.4 million.
The post-employment benefit obligation and associated deferred income tax asset thereon is shown below:
As at As at As at
30 June 30 June 31 December
2017 2016 2016
GBPm GBPm GBPm
Post-employment benefit obligation (9.7) (13.7) (18.2)
Deferred income tax asset thereon 1.8 2.6 3.4
------------------------------------ --------- --------- -------------
(7.9) (11.1) (14.8)
------------------------------------ --------- --------- -------------
The reconciliation of the opening gross post-employment benefit obligation to the closing gross post-employment benefit obligation is shown below:
As at As at As at
30 June 30 June 31 December
2017 2016 2016
GBPm GBPm GBPm
Opening post-employment benefit
obligation (18.2) (16.0) (16.0)
Notional interest (0.2) (0.3) (0.6)
Employer contributions 2.4 0.9 1.9
Re-measurement gains / (losses) 6.2 1.5 (3.5)
Utilisation of healthcare provision 0.1 0.2 -
------------------------------------- --------- --------- -------------
Closing post-employment benefit
obligation (9.7) (13.7) (18.2)
------------------------------------- --------- --------- -------------
9 CAPITAL EXPITURE AND COMMITMENTS
CAPITAL EXPITURE
In the half year ended 30 June 2017 the Group acquired property, plant and equipment and intangible assets for a cost of GBP6.5 million (June 2016: GBP4.9 million; December 2016: GBP15.6 million), not including property, plant and equipment and intangible assets acquired through business combinations. In addition, textile rental items with a cost of GBP19.6 million were acquired during the period (June 2016: GBP15.9 million; December 2016: GBP35.4 million), not including textile rental items acquired through business combinations.
Offsetting this, property, plant and equipment with a net book value of GBPnil million was disposed of during the period (June 2016: GBP0.3 million; December 2016: GBP0.6 million). In addition, amounts received in respect of textile rental special charges were GBP1.2 million (June 2016: GBP1.5 million; December 2016: GBP2.7 million).
CAPITAL COMMITMENTS
Orders placed for future capital expenditure contracted but not provided for in the financial statements are shown below:
As at As at As at
30 June 30 June 31 December
2017 2016 2016
GBPm GBPm GBPm
Property, plant and equipment 2.9 6.0 3.2
------------------------------- --------- --------- -------------
10 SHARE CAPITAL
Issued share capital has increased as follows:
Half Half Year
year year ended
to to 31 December
30 June 30 June 2016
2017 2016
GBPm GBPm GBPm
Share capital at the start
of the period 36.5 33.1 33.1
New shares issued 0.1 3.3 3.4
----------------------------- --------- --------- -------------
Share capital at the end of
the period 36.6 36.4 36.5
----------------------------- --------- --------- -------------
As at 30 June 2017 the Company has issued share capital of 366,466,609 Ordinary Shares of 10p each.
In the period to June 2017 1,025,000 Approved LTIP options were exercised with a total nominal value of GBP102,500 (June 2016: GBPnil; December 2016: GBPnil) and 333,590 SAYE scheme options were exercised with a total nominal value of GBP33,359 (June 2016: GBP4,538; December 2016: GBP147,645). Proceeds in excess of the nominal value were credited to Share Premium.
In the period to 30 June 2016, the Company placed 33.1 million Ordinary shares (the '2016 Placing') with existing and new institutional investors raising net proceeds of GBP28.7 million of which GBP3.3 million was credited to share capital. The 2016 Placing shares represented approximately 9.99 per cent of the Company's existing share capital. The 2016 Placing price of 90 pence per share was equal to 97.6% of the closing mid-market price per Ordinary Share on 28 April 2016, being the latest practicable date prior to the announcement of the 2016 Placing. The 2016 Placing was undertaken using a cash box structure. As a result, the Company was able to take relief under section 612 of the Companies Act 2006 from crediting share premium and instead transfer the net proceeds in excess of the nominal value to retained earnings.
11 BUSINESS COMBINATIONS
There have been no business combinations in the period to 30 June 2017, nor have there been any adjustments to the fair value of assets and liabilities acquired on previous acquisitions. Full details of acquisitions in 2016 are provided in the 2016 Annual Report.
12 DISPOSALS AND DISCONTINUED OPERATIONS
On 4 January 2017 the Group disposed of its Drycleaning business for a consideration of GBP8.3 million on a debt free, cash free basis and subject to adjustments for normalised working capital. The initial proceeds for the disposal, net of transaction costs of GBP0.5 million, were GBP6.8 million, with a further GBP1.0 million of contingent consideration potentially receivable within 12 months of completion, dependent on the satisfaction of certain conditions. The Drycleaning business is included in the December 2016 Balance Sheet as "assets classified as held for sale" and "liabilities directly associated with assets held for resale". The anticipated loss on disposal of GBP2.0 million was reflected as an impairment of goodwill as at December 2016 and included within Discontinued Operations.
Carrying
value under
IFRS5 as
Assets/(Liabilities) at 31 December
Transferred 2016
to Held & 4 January
for Sale Impairment 2017
GBPm GBPm GBPm
Intangible assets -
Goodwill 9.1 (2.0) 7.1
Intangible assets -
Software 0.1 - 0.1
Property, plant and
equipment 4.4 - 4.4
Deferred income tax
asset 0.8 - 0.8
Inventories 0.4 - 0.4
Trade and other receivables 3.6 - 3.6
Cash 0.8 - 0.8
Trade and other payables (6.0) - (6.0)
Provisions (3.4) - (3.4)
----------------------------- --------------------- ----------- ----------------
9.8 (2.0) 7.8
----------------------------- --------------------- ----------- ----------------
Included within Assets
classified as held for
sale 17.2
Included within Liabilities directly
associated with assets classified as
held for sale (9.4)
----------------------------------------------------------------- ----------------
Net assets disposed
of 7.8
Proceeds receivable (8.3)
Related costs 0.5
----------------------------- --------------------- ----------- ----------------
Profit on disposal -
----------------------------- --------------------- ----------- ----------------
Discontinued operations include the following items:
-- Trade relating to the drycleaning business -- Drycleaning goodwill impairment
-- In relation to the prior period a GBP0.4 million property provision release relating to operations discontinued in previous years
-- Taxation on the above items
The total result relating to discontinued operations is as follows:
Half Half Year
year year ended
to to 31 December
30 June 30 June 2016
2017 2016
GBPm GBPm GBPm
Revenue - 21.9 44.3
Operating profit before amortisation
of intangible assets (excluding
software amortisation) and
exceptional items - 0.6 2.0
Finance cost - (0.1) (0.1)
Exceptional items - - 0.4
Taxation charge - (0.1) (0.6)
-------------------------------------- ---------- --------- ---------------------
Profit for the period - 0.4 1.7
Impairment of assets classified
as held for sale - - (2.0)
-------------------------------------- ---------- --------- ---------------------
Retained result from discontinued
operations - 0.4 (0.3)
-------------------------------------- ---------- --------- ---------------------
Cash flows relating to discontinued operations are as follows:
Half Half Year
year year ended
to to 31 December
30 June 30 June 2016
2017 2016
GBPm GBPm GBPm
Proceeds from disposal 7.3 - -
Payment of costs relating to
the disposal (0.5) - -
Cash disposed of (0.8) - -
Net proceeds from disposal 6.0 - -
Net cash used in operating
activities (0.2) (1.6) (0.2)
Net cash used in financing
activities - (0.4) (0.9)
---------------------------------------- --------- --------- -------------
Net cash flow relating to discontinued
operations 5.8 (2.0) (1.1)
---------------------------------------- --------- --------- -------------
13 BORROWINGS
As at 30 June 2017, borrowings were secured and drawn down under a committed facility dated 21 February 2014, as amended and restated on 24 April 2015 and as further amended and restated on 22 April 2016, comprising a GBP120.0 million rolling credit facility (including an overdraft) which runs to 24 April 2020.
Individual tranches are drawn down, in sterling, for periods of up to six months at LIBOR rates of interest prevailing at the time of drawdown, plus the applicable margin. The margin varies between 1.25% and 2.25%.
As at 30 June 2017, GBP50.0 million of borrowings were subject to hedging arrangements which had the effect of replacing LIBOR with fixed rates as follows:
-- for GBP15.0 million of borrowings, LIBOR is replaced with 1.4725% from 8 January 2016 to 8 January 2019;
-- for GBP15.0 million of borrowings, LIBOR is replaced with 1.665% from 8 January 2016 to 8 January 2020;
-- for GBP10.0 million of borrowings, LIBOR is replaced with 0.49% from 30 June 2016 to 30 June 2018; and
-- for GBP10.0 million of borrowings, LIBOR is replaced with 0.5525% from 30 June 2016 to 30 June 2019.
Borrowings are stated net of unamortised issue costs of GBP0.5 million (30 June 2016: GBP0.8 million; 31 December 2016: GBP0.7 million).
14 ANALYSIS OF NET DEBT
Net debt is calculated as total borrowings net of unamortised bank facility fees, less cash and cash equivalents. Non-cash changes represent the effects of the recognition and subsequent amortisation of fees relating to the bank facility, changing maturity profiles, debt acquired as part of an acquisition and new finance leases entered into during the year.
Debt
Cash due
and cash Debt after
equivalents due more
within than
one one Finance Total
year year leases net debt
GBPm GBPm GBPm GBPm GBPm
Balance at 31
December 2015 (4.4) (1.3) (58.5) (7.0) (71.2)
Cash flow 0.9 0.3 (25.0) 2.6 (21.2)
Other non-cash
changes - (3.7) - (12.8) (16.5)
---------------- -------------- ---------------- ------- -------- ----------
Balance at 30
June 2016 (3.5) (4.7) (83.5) (17.2) (108.9)
---------------- -------------- ---------------- ------- -------- ----------
Cash flow 2.0 (5.0) 11.0 2.7 10.7
Other non-cash
changes - (0.1) - 0.1 -
---------------- -------------- ---------------- ------- -------- ----------
Balance at 31
December 2016 (1.5) (9.8) (72.5) (14.4) (98.2)
---------------- -------------- ---------------- ------- -------- ----------
Cash flow (2.1) - 8.0 2.5 8.4 Other non-cash changes - 0.1 (0.3) - (0.2) ---------------- -------------- ---------------- ------- -------- ---------- Balance at 30 June 2017 (3.6) (9.7) (64.8) (11.9) (90.0) ---------------- -------------- ---------------- ------- -------- ----------
The cash and cash equivalents figures are comprised of the following balance sheet amounts:
As at
30 As at As at
June 30 June 31 December
2017 2016 2016
GBPm GBPm GBPm
Cash (Current assets) 6.5 5.4 2.9
Overdraft (Borrowings, Current
liabilities) (10.1) (8.9) (5.2)
Cash within assets classified
as held for sale - - 0.8
-------------------------------- ------- --------- -------------
(3.6) (3.5) (1.5)
-------------------------------- ------- --------- -------------
Finance lease obligations are comprised of the following balance sheet amounts:
As at
30 As at As at
June 30 June 31 December
2017 2016 2016
GBPm GBPm GBPm
Amounts due within one year
(Borrowings, Current Liabilities) (4.7) (4.3) (4.9)
Amounts due after more than
one year (Borrowings, Non-Current
Liabilities) (7.2) (12.9) (9.5)
------------------------------------ ------- --------- -------------
(11.9) (17.2) (14.4)
------------------------------------ ------- --------- -------------
15 RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
Half Half Year
year year ended
to to 31 December
30 June 30 June 2016
2017 2016
GBPm GBPm GBPm
(Decrease) / increase in cash
in the period (2.1) 0.9 2.9
Decrease / (increase) in debt
and lease financing 10.5 (22.1) (13.4)
-------------------------------- --------- --------- ----------------
Change in net debt resulting
from cash flows 8.4 (21.2) (10.5)
Debt acquired through business
acquisitions - (16.5) (16.5)
Movement in unamortised issue (0.2) - -
costs of bank loans
Movement in net debt during
the period 8.2 (37.7) (27.0)
Opening net debt (98.2) (71.2) (71.2)
-------------------------------- --------- --------- ----------------
Closing net debt (90.0) (108.9) (98.2)
-------------------------------- --------- --------- ----------------
16 RELATED PARTY TRANSACTIONS
Transactions during the year between the Company and its subsidiaries, which are related parties, have been conducted on an arm's 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 31 December 2016. There have been no material changes in these relationships in the half year to 30 June 2017 or up to the date of this Report.
17 CONTINGENT LIABILITIES
The Group operates from a number of sites across the UK. Some of the sites have operated as laundry sites for many years and historic environmental liabilities may exist. Such liabilities are not expected to give rise to any significant loss.
The Group has granted its Bankers and Trustee of the Pension Scheme (the 'Trustee') security over the assets of the Group. The priority of security is as follows:
-- first ranking security for GBP28.0 million to the Trustee ranking pari passu with up to GBP156.0 million of bank liabilities; and
-- second ranking security for the balance of any remaining liabilities to the Trustee ranking pari passu with any remaining bank liabilities.
During the period of ownership of the Facilities Management division the Company had given guarantees over the performance of contracts entered into by the division. As part of the disposal of the division the purchaser has agreed to pursue the release or transfer of obligations under the Parent Company guarantees and this is in process. The Sale and Purchase agreement contains an indemnity from the purchaser to cover any loss in the event a claim is made prior to release. In the period until release the purchaser is to make a payment to the Company of GBP0.2 million per annum, reduced pro rata as guarantees are released. Such liabilities are not expected to give rise to any significant loss.
As a condition of the sale of the Facilities Management division in August 2013, the Group has put in place indemnities, to the purchaser, in relation to any future amounts payable in respect of contingent consideration related to the Nickleby acquisition completed in February 2012. As set out in the 2012 Annual Report and Accounts the maximum amount payable under the terms of the indemnity could be up to GBP5.0 million. The Directors believe the risk of settlement at, or near, the maximum level to be remote.
18 EVENTS AFTER THE REPORTING PERIOD
On 28 July 2017, the Group acquired the entire issued share capital of Clayfull Limited, a company registered in Scotland and trading under the name Professional Linen Services ("PLS"), for a cash consideration of GBP6.6 million on a debt-free, cash-free basis and subject to normalised working capital. At the same time, the Group also purchased the freehold site from which PLS operates for a cash consideration of GBP1.25 million. PLS, which serves the high volume hotel and leisure sectors throughout much of Scotland and the North East of England, operates from a modern and well equipped facility based in Bonnyrigg (south of Edinburgh). Whilst expected to be immediately earnings enhancing, the main focus of this acquisition is to complement our existing Bourne and Afonwen businesses by improving operational capacity and extending the Company's reach of existing hotel customers. PLS reported revenue of GBP4.9 million for the year to 31 August 2016.
There have been no other events that require disclosure in accordance with IAS10, 'Events after the balance sheet date'.
19 ACCOUNTING POLICIES
Except as described below, the condensed 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 31 December 2016.
(a) Taxation
Taxes on income in the interim periods are accrued using the tax rate that would be applicable to expected total annual earnings before exceptional items. Taxation on exceptional items is accrued as the exceptional items are recognised. Prior year adjustments in respect of taxation are recognised when it becomes probable that such adjustment is needed.
(b) Seasonality of operations
Seasonality or cyclicality could affect all of the businesses to varying extents, however, the Directors do not consider such seasonality or cyclicality to be significant in the context of the condensed consolidated interim financial statements.
(c) Standards and amendments to standards effective in 2017
New and amended standards and interpretations need to be adopted in the first interim financial statements issued after their effective date (or date of early adoption). There are no new or amended standards and interpretations that are effective for the financial year ending 31 December 2017 that are expected to have a material impact on the Group.
(d) Standards and amendments to standards effective after 2017
IFRS 15, 'Revenue from contracts with customers'
This standard deals with revenue recognition and establishes principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity's contracts with customers. Revenue is recognised when a customer obtains control of a good or service and thus has the ability to direct the use and obtain the benefits from the good or service. The standard replaces IAS 18 'Revenue' and IAS 11 'Construction contracts' and related interpretations. The standard, which was endorsed by the EU in September 2016, is effective for annual periods beginning on or after 1 January 2018 and earlier application is permitted. At this time, the Board does not expect there to be any significant impact of the standard on revenue recognition within the Group.
IFRS 16, 'Leases'
The Board is still in the process of reviewing the impact of IFRS 16 on the Group's accounting policies. The Group currently leases both properties and vehicles under a series of operating lease contracts which will be impacted by the new standard. These types of leases may need to be brought onto the Group's Balance Sheet from the date of adoption of the new standard. As a consequence of this, there is likely to be an impact on the make-up of the Group's Income Statement where operating lease costs are likely to be replaced by a depreciation charge and related interest charge. The changes will not impact on the cash flow of the Group. From a lessor perspective, the Board is continuing to perform a detailed review to assess whether the changes will have a significant impact on the Group's financial statements.
(e) Critical accounting estimates and assumptions
The preparation of the condensed 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.
20 PRINCIPAL RISKS AND UNCERTAINTIES
The Group operates a structured risk management process, which identifies and evaluates risks and uncertainties and reviews mitigation activity. The Group set out in its 2016 Annual Report the principal risks and uncertainties that could impact its performance. These remain unchanged since the Annual Report was published and are summarised below:
Financial Risks Operational Risks Regulatory Risk
Economy Failure of Strategy Health and Safety
Cost Inflation Customers Compliance and
Interest Rate Fluctuations Competition Fraud
Liquidity Risk Retention and Motivation
Loss of a Processing
Facility
Information Systems
and Technology
These risks and uncertainties do not comprise all of the risks and uncertainties that the Group may face and are not listed in any order of priority. Additional risks and uncertainties not presently known to the Board may also have an adverse effect on the Group. These include risks resulting from the UK's EU referendum which could adversely affect the economic and political environment as well as affecting financial risks such as liquidity and credit. Although the risks related to the EU referendum have been discussed by the Board, it is too early to fully assess or quantify any potential impact on the business.
The Group has no exposure to sub-prime lending or collateralised debt obligations. The Group does not export its services and has a wide spread of customers across many sectors. The Group has sufficient headroom to enable it to conform to covenants on its existing borrowings and has sufficient working capital and undrawn financing facilities to service its operating activities.
The main area of potential risk and uncertainty on a short-term forward-looking basis over the remainder of the financial year centres on the sales and profit impact from economic conditions and customer demand, together with the impact of product cost pressures and an associated level of customer price inflation. Other potential risks and uncertainties around sales and/or profits include competitor activity, energy prices, product supply and other operational processes, product safety, business interruption, infrastructure development, reliance on key personnel and the regulatory environment.
Further details of the Principal Risks and Uncertainties facing the Group were detailed on pages 16 to 19 of the 2016 Annual Report.
21 PUBLISHED FINANCIAL STATEMENTS
As previously announced, there is no longer a requirement to send out half-yearly reports to all Shareholders or to advertise the content in a national newspaper.
In order to reduce costs, the Company has taken advantage of this reporting regime and no longer publishes half-yearly reports for individual circulation to Shareholders. Information that would normally be included in a half-yearly report is made available on the Company's website at www.jsg.com.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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