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

§ Strong financial performance:

-     reflects both strong organic growth of 4.8% together with the benefits of recent acquisitions

-     net debt of £90.0m, 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 £0.8 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

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 £138.0 million (June 2016: £115.7 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 £18.6 million (June 2016: £15.5 million).

Adjusted profit before taxation increased to £16.8 million (June 2016: £13.6 million) after net finance costs of £1.8 million (June 2016: £1.9 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: £0.7 million).  The statutory profit before tax after amortisation of intangible assets (excluding software amortisation) of £3.9 million (June 2016: £3.0 million) increased by 30.3% to £12.9 million (June 2016: £9.9 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 £90.0 million (December 2016: £98.2 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 £120.0 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 £15.0 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 £10.0 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 £7.9 million at June 2017 from £14.8 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 £1.9 million in the year to December 2017, of which £0.9 million was contributed during the first half.  In addition to this agreed schedule of contributions a further payment of £1.5 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 £39.3 million. However given the additional contribution of £1.5 million referred to above, the Trustee has agreed that ongoing deficit funding contributions will remain at the current level of £1.9 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 £6.6 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 £1.25 million.

As reported in the management accounts for the year ended August 2016, the business generated revenue of £4.9 million and adjusted EBIT of £0.5 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 £0.8 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 £138.0 million (June 2016: £115.7 million), an increase of 19.3%.  This £22.3 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 £1.0 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 £3.4 million to £20.7 million (June 2016: £17.3 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 £4.5 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 £2.0 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 £3.5 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.