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 £4.0 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 £6.5 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 £3.0 million in cash on completion and will be financed from existing bank facilities, of which £1.2 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 £6.5 million of which £0.7 million is non cash. It is estimated that £2.4 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 £0.5 million, compared to breakeven in the first half of 2009.
Net Debt
Net debt at the end of June is anticipated to be approximately £65.0 million (December 2009: £67.7 million) after a cash outflow of £1.3 million on acquisitions and related costs and a corporation tax repayment of £2.0 million.
We anticipate announcing the results for the first half of 2010 on 1 September 2010.
Enquiries:
Johnson Service Group PLC
John Talbot, Executive Chairman Yvonne Monaghan, Finance Director
Tel: 01928 704600 Tel: 01928 704600
Threadneedle Communications
Graham Herring/John Coles
Tel: 020 7653 9850
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