Johnson Service Regulatory News (JSG)

6th January 2015

Johnson Service Group PLC

Pre-Close Trading Statement and Drycleaning Strategy Review

Overall Group trading results for the year ended 31st December 2014 are expected to be slightly ahead of expectations and significantly ahead of the prior year following our successful acquisition of Bourne in early 2014. This acquisition was a key part of our strategy to expand into the volume hotel linen market and was immediately earnings enhancing.

Textile Rental

Textile Rental, by far the largest part of the Group, has continued to perform well, with improved margins, increased customer retention and strong new sales which have resulted in additional investment in rental stocks.

The £8.2 million investment in our new plant in Leeds is on schedule to be operational in early 2015 and will be the UK's most automated garment processing plant.

Drycleaning

Drycleaning continues to operate in a difficult high street environment and despite several initiatives to reach new customers the like for like sales increase we achieved in 2013 has not been maintained in 2014. Notwithstanding this we anticipate the result for 2014 to be in line with expectations.

Our strategy to develop alternative, more convenient collection and delivery locations has progressed particularly well through our partnership with Waitrose. We were represented in 78 Waitrose stores at the end of December 2014 with a further 46 locations anticipated to be opened in the first quarter of this year.

We have also established collection and delivery points in office premises with a high concentration of staff, thereby increasing convenience to customers. In addition, for higher value or bulky items, we will be launching a new online home collection and delivery service from mid 2015.

In parallel with these new initiatives we have reviewed the lease profile of our current 307 branches and have identified 109 branches, the majority of which have leases expiring within the next two years, where renewal will not be financially viable. We are commencing a consultation exercise with affected employees and anticipate that branches will close during the first half of the year.

The remaining 198 better performing premium branches are in more convenient locations with an infrastructure capable of receiving Drycleaning from various collection and delivery points.

Restructuring Cost

The estimated charge to the Group's income statement for the planned restructuring of the Drycleaning business and associated property provisions is, in aggregate, approximately £6.5 million net, and will be treated as an exceptional item in the first half of 2015. This estimated cost will, due to the timing of the decision to implement the strategy being after 31st December 2014, be reported as a post balance sheet event in the Annual Report for the year ended 31st December 2014.

Of the estimated charge, £0.4 million is non-cash and only £1.4 million is an additional cash requirement relating to the restructuring cost, as the balance is already contractually committed cash spend in the current and future years (including rent, rates, insurance and dilapidations) irrespective of the restructuring plan.

Net Debt

Net debt at the end of December is expected to be approximately £29.0 million compared to £31.7 million at June 2014. The reduction is despite the significant investment in the new Leeds plant.

Outlook

The Board is pleased with the performance of Textile Rental, which is the core of the Group's operations and sees additional opportunities for further investment and growth.

In Drycleaning, the opportunity to streamline the branch network and improve the convenience of our services for many customers is expected to drive increased margin in the medium term.

Overall, the Board expects the positive momentum in the Textile Rental business achieved in 2014 to continue into 2015 and the Drycleaning business to benefit from the actions being implemented.

The Group expects to release the results for the year to 31st December 2014 on 3rd March 2015.

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