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Johnson House,
Abbots Park, Monks Way
Preston Brook
Cheshire WA7 3GH
Tel:
+44 (0)1928 704 600
Fax: +44 (0)1928 704 620
Email: enquiries@jsg.com
Annual Report
and Accounts
2017
170435 Johnson Annual Report Cover 12mm spine_170435 Johnson Annual Report Cover 12mm spine 02/03/2018 22:02 Page 2
Johnson Service Group PLC Annual Report and Accounts 2017
Annual Report and Accounts 2011 Johnson Service Group PLC 2
Annual Report and Accounts 2017 Johnson Service Group PLC
THE LEADING NAME IN
TEXTILE RENTAL
Design: mediasterling.com
Production: sterlingfp.com
This annual report is printed using vegetable
inks on paper from an ISO 14001 certified
manufacturer, and is made with ECF pulp
sourced from carefully managed and
renewed forests.
Electronic Communications
The Company offers Shareholders the
opportunity to receive communications such as
notices of Shareholder meetings and the annual
report and accounts electronically. The Company
encourages the use of electronic communication
as, not only does it save the Company printing
and mailing costs, it is also a more convenient
and prompt method of communication.
If you decide to receive communications
electronically, you will be sent an email message
each time a new Shareholder report or notice
of meeting is published. The email will contain
links to the appropriate website where
documents can be viewed. It is possible
to change your instruction at any time by
amending your details on the register.
If you would like to receive electronic
communications, you will need to register your
email address by accessing the Shareholder
Services page within the Investor Relations
section of the Company’s website at
www.jsg.com.
This will link you to the service offered by the
Company’s Registrar. If you decide not to register
an email address with the Registrar, you will
continue to receive all communications in hard
copy form.
Those Shareholders who are CREST members
and who wish to appoint a proxy or proxies
utilising the proxy voting service please refer to
Note 2 of the Notice of Annual General Meeting.
www.jsg.com
If you have any queries regarding electronic communications, please contact the
Company’s registrar, Link Asset Services, on 0871 664 0300 (calls cost 10p per
minute plus network extras, lines are open 8.30am-5.30pm Mon-Fri).
170435 Johnson Service Group Annual Report Pt1_170435 Johnson Service Group Annual Report Pt1.qxp 02/03/2018 20:33 Page 1
Annual Report and Accounts 2017 Johnson Service Group PLC 1
02
04
06
08
22
23
25
26
45
50
51
51
97
101
101
102
114
124
124
Group Overview and Highlights
Strategic Review
Chairman’s Statement
Chief Executive’s Operating Review
Board of Directors
Directors’ Report
Directors’ Responsibilities Statement
Corporate Governance Report
Consolidated Independent Auditors’ Report
Consolidated Income Statement
Consolidated Statement of Comprehensive Income
Consolidated Statement of Changes in Shareholders’ Equity
12
14
18
31
35
37
52
53
54
65
Financial Review
Corporate Social Responsibility Statement
Principal Risks and Uncertainties
Audit Committee Report
Nomination Committee Report
Board Report on Remuneration
Consolidated Balance Sheet
Consolidated Statement of Cash Flows
Statement of Significant Accounting Policies
Notes to the Consolidated Financial Statements
Company Independent Auditors’ Report
Company Statement of Comprehensive Income
Company Statement of Changes in Shareholders’ Equity
Company Balance Sheet
103
104
105
Company Statement of Cash Flows
Statement of Significant Accounting Policies
Notes to the Company Financial Statements
Notice of Annual General Meeting
Directors and Advisors
Financial Calendar
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170435 Johnson Service Group Annual Report Pt1_170435 Johnson Service Group Annual Report Pt1.qxp 02/03/2018 20:33 Page 2
2 Johnson Service Group PLC Annual Report and Accounts 2017
GROUP OVERVIEW AND HIGHLIGHTS
THE LEADING PROVIDER OF WORKWEAR,
LINEN RENTAL AND LAUNDRY SERVICES
THROUGHOUT THE UK.
APPARELMASTER
The UK’s market leading workwear rental, protective
wear and workplace hygiene services provider with
over 40,000 UK-based customers operating in a
wide cross-section of industries.
LONDON LINEN
London Linen provides an extensive range of table
linen, napkins and chefs’ wear to the restaurant,
catering and hospitality market on a national
basis.
STALBRIDGE
Providing a wide range of high quality products to
the premium hotel, catering and corporate hospitality
markets, including chefswear, crisp white bed linen,
fluffy towels and a range of table linen.
www.apparelmaster.co.uk
www.londonlinen.co.uk
www.stalbridge-linen.com
AFONWEN
Afonwen is one of the UK’s largest laundry and linen
hire companies, focused exclusively on the hotel
industry and delivering and collecting over 3 million
items a week.
BOURNE
Providing high quality linen to a complete cross
section of hotels, including city and town centre
establishments, holiday village resorts and many
hotels in the rapidly growing budget hotel sector.
PLS
PLS is focused exclusively on the hotel and
hospitality sector, providing a reliable service
throughout much of Scotland and the North East of
England from its Bonnyrigg base, south of Edinburgh.
www.afonwenlaundry.com
www.bournegroup.co.uk
www.plslaundry.co.uk
170435 Johnson Service Group Annual Report Pt1_170435 Johnson Service Group Annual Report Pt1.qxp 02/03/2018 20:33 Page 3
Annual Report and Accounts 2017 Johnson Service Group PLC 3
STRONG FINANCIAL
PERFORMANCE
OPERATIONAL HIGHLIGHTS
We continue to pursue our clear and focused strategy
Continued focus on delivering service excellence
Organic revenue growth of 5.1%1
Significant ongoing investment in our processing facilities
Strategic acquisitions of PLS and StarCounty
Disposal of retail Drycleaning business in January 2017
REVENUE 2
Increased to £290.9m
(2016: £256.7m)
+13.3% 16
17
ADJUSTED
OPERATING PROFIT 2, 3
Increased to £43.3m
(2016: £37.7m)
+14.9% 16
17
ADJUSTED PROFIT
BEFORE TAXATION 2, 3
Increased to £39.7m
(2016: £33.8m)
+17.5% 16
17
FULL YEAR
DIVIDEND
increased to 2.8 pence
(2016: 2.5 pence)
+12.0% 16
17
290.9m
43.3m
39.7m
2.8p
1 Excluding revenue
from acquisitions
completed in 2017, the
full year benefit of
acquisitions completed
in 2016 and the one
off benefit of some
£2.6 million of revenue
for work processed in
2017 on behalf of a
privately owned laundry
whose plant was out of
commission.
2 From continuing
operations
3 Before charging
£8.0 million (2016:
£6.9 million) of
amortisation of
intangible assets
(excluding software
amortisation) and net
exceptional items of
£0.5 million (2016:
£1.0 million).
OPERATING
PROFIT 2
Increased to £34.8m
(2016: £29.8m)
+16.8% 16
17
PROFIT BEFORE
TAXATION 2
Increased to £31.2m
(2016: £25.9m)
+20.5% 16
17
ADJUSTED
DILUTED EPS 2, 3
Increased to 8.7p
(2016: 7.6p)
+14.5% 16
17
34.8m
31.2m
8.7p
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170435 Johnson Service Group Annual Report Pt1_170435 Johnson Service Group Annual Report Pt1.qxp 02/03/2018 20:33 Page 4
4 Johnson Service Group PLC Annual Report and Accounts 2017
STRATEGIC REVIEW
TIM MORRIS
ENTIRELY FOCUSED
ON TEXTILE SERVICES
The Strategic Report
The Strategic Report comprises the Group Overview and
Highlights, the Strategic Review, the Chairman’s
Statement, the Chief Executive’s Operating Review, the
Financial Review, the Corporate Social Responsibility
Statement and the Principal Risks and Uncertainties.
Principal Activities and Business Overview
Johnson Service Group PLC (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 Company and its subsidiaries (together, the ‘Group’)
provide textile rental and related services across the UK.
Our ‘Workwear’ business is the leading supplier of
workwear and protective wear in the UK, offering these
services through the Apparelmaster brand. Our ‘HORECA’
business provides premium linen services for the hotel,
restaurant and catering markets through the Stalbridge,
London Linen, Bourne, Afonwen and PLS brands.
Mission:
Enable our people and businesses to achieve their true
potential from a stable financial platform.
Vision:
Achieve and maintain market leadership in all areas in
which we have a major focus.
Values:
➔ To set the highest ethical and professional standards
at all times and to operate with openness, trust,
respect and integrity.
➔ To believe in the talents and energy of those who
work in our businesses, to encourage them wherever
possible to take responsibility and to give them the
power to follow through on the decisions they take.
Targets:
➔ Be recognised as market leader across all of
our businesses.
➔ Provide leading edge customer service in all of
our businesses.
➔ Continuously strive to minimise the environmental
impact of our operations.
➔ Increase Total Shareholder Return (TSR) over the
longer term.
Our Business Model
For some time now, the Board’s strategy has been to focus
the Group on our core business of Textile Services. The
disposal of the Facilities Management division in August
2013, followed by several strategic acquisitions of well
invested businesses within the HORECA market together
with the disposal of the Drycleaning business, in January
2017, represent the major steps in achieving this goal.
The Group’s business model, which supports this strategy
and aims to increase both profitability and shareholder
value, focuses on delivering exceptional customer service
across all of our businesses in order to increase
customer satisfaction and loyalty and attract new
customers. We generate efficiencies by optimising our
supply chain, taking advantage of operational synergies
and diligently managing our cost base. These efficiencies
enable us to reinvest in the significant growth
opportunities around the Group and to improve margins.
Operational
Synergies
Organic
Growth
Our
Employees
Strategic
Acquisitions
Cost
Management
Key to this is our biggest
asset, our highly capable
employees, who are the face
of our business. The
investment we make in the
training and development of
our employees supports our
business model and we seek
the views and opinions of
employees, at all levels, to continuously develop the way
we operate such that we support our people and the
operations of the Group.
Our organic revenue growth, the scale it creates and our
focus on cost and efficiencies give us a competitive
advantage. We can provide our customers with the best
value in terms of quality and cost and this helps drive long
term and sustainable organic revenue growth. In addition
to growing organically, we continue to actively pursue
strategic acquisition opportunities and to identify
businesses which broaden our services, geographic
spread and which add value for Shareholders.
Key Performance Indicators (KPIs)
The Group refers to certain KPIs to assess the
performance of the Group as a whole, and of the various
businesses. Further details of the KPIs are set out within
the Financial Review on page 13.
Future Prospects
All companies with a Premium Listing of equity shares in
the UK are required, under the Listing Rules, to comply
with the Financial Reporting Council’s UK Corporate
Governance Code (the ‘Code’). The Code is intended to
enhance the quality of information investors receive
about the long-term health and strategy of listed
companies, and raises the bar for risk management.
170435 Johnson Service Group Annual Report Pt1_170435 Johnson Service Group Annual Report Pt1.qxp 02/03/2018 20:33 Page 5
Annual Report and Accounts 2017 Johnson Service Group PLC 5
OUR TARGETS
TO BE RECOGNISED
AS MARKET
LEADER ACROSS
ALL OF OUR
BUSINESSES.
TO PROVIDE
LEADING EDGE
CUSTOMER
SERVICE IN ALL OF
OUR BUSINESSES.
TO CONTINUOUSLY
STRIVE TO
MINIMISE THE
ENVIRONMENTAL
IMPACT OF OUR
OPERATIONS.
TO INCREASE
TOTAL SHAREHOLDER
RETURN (TSR) OVER
THE LONGER TERM.
As a Company trading on AIM, we are not required to
comply with the Code, however, we do so voluntarily. The
Code contains a provision requiring the Board to assess
the prospects of the Company. The Board is acutely
aware that an understanding of the future prospects of
the Group is of vital importance to all stakeholders and,
as such, a statement, on behalf of the Board, is set out
below on the future prospects of the Group.
“The Directors confirm that, based upon the information
and knowledge of which they can be reasonably
expected to be aware, they have a reasonable
expectation that the Group will be able to continue in
operation and meet its liabilities as they fall due for a
period of not less than 36 months from the balance
sheet date”.
Whilst the Directors expect the future prospects of the
Group to extend beyond the 36 month period referred to
above, this period has been selected, for the purpose of
this statement, as:
➔ it is concurrent with the Group’s strategic budgeting
process;
➔ it is consistent with the average contract life of key
customers, which provide stable revenue streams,
being approximately 36 months;
➔ the Group has committed banking facilities covering
the majority of this period, to April 2020, and aims to
renew them in advance of that date; and
➔ projections looking out further than 36 months
become significantly less meaningful in the context of
the Group’s operations and markets.
The Directors do not believe, having taken into
consideration the principal risks and uncertainties facing
the Group (as set out on pages 18 to 21) and, inter alia,
the points set out below, that the trading performance
and cash generation of the Group will be materially
adversely affected within that time frame, as:
➔ the Group has a committed bank facility, with
significant headroom both in terms of covenant
compliance and availability, through to April 2020
which is considered to be sufficient to meet the
Group’s current requirements throughout that period
and it is confident of renewing its facilities in advance
of that date;
➔ interest rate risk is mitigated through two hedging
arrangements which replace LIBOR with fixed rates
of 1.4725% and 1.665%, each over a £15.0 million
tranche of borrowings until January 2019 and
January 2020 respectively, and two further hedging
arrangements which replace LIBOR with fixed rates
of 0.49% and 0.5525%, each over a £10.0 million
tranche of borrowings until June 2018 and June
2019 respectively, providing certainty over part of the
Group’s interest cash flows;
➔ our diversified customer base, the majority of which
have a formal contract in place with varying expiry
dates of up to five years, provides a secure future
income stream whilst at the same time ensuring that
the loss of any single key customer would not
materially impact the Group’s future trading
performance and cash flows;
➔ the diverse and unrelated nature of the Group’s
customer base limits concentration of credit risk;
➔ the Group has prepared a three year financial budget
which has been approved by the Board. Prior to
approving the budget the Board reviewed, challenged
and stress tested the financial projections and
assumptions contained within the budget under a
wide range of reasonably possible scenarios, for
example, the effect on the Group’s trading
performance and its ability to generate sufficient cash
flows following either a significant increase in interest
rates, a significant decrease in profitability or a
combination of both and were able to conclude that
none of the scenarios indicated a significant threat to
the future prospects of the Group;
➔ the Group continuously strives to seek out and
invest in plant and equipment that will help drive
operational efficiencies;
➔ a significant number of the Group’s key processing
sites are owned on either a freehold or long leasehold
basis thereby providing security of tenure;
➔ the wide geographic spread of processing sites
mitigates the effect of a loss of any single processing
facility (as demonstrated during 2016 following
serious flooding damage at one of our Apparelmaster
sites) and, furthermore, appropriate insurance cover is
in place such that the increased cost of working
following a loss of processing capacity may, in some
circumstances, be recovered; and
➔ the Group continuously reviews the adequacy and
strength of its management teams to ensure that
appropriate experience and training is given and
develops succession planning as part of the
development programmes for our people.
Although the Board is confident of the future prospects
of the Group, there remain a number of risks and
uncertainties, which are often beyond the control of the
Directors, which could mean that actual results and
events may differ from those budgeted.
Strategic Report Approval
The Strategic Report, outlined on pages 2 to 21,
incorporates the Group Overview and Highlights, the
Strategic Review, the Chairman’s Statement, the Chief
Executive’s Operating Review, the Financial Review, the
Corporate Social Responsibility Statement and the
Principal Risks and Uncertainties.
By order of the Board
Tim Morris
Company Secretary
27 February 2018
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170435 Johnson Service Group Annual Report Pt1_170435 Johnson Service Group Annual Report Pt1.qxp 02/03/2018 20:33 Page 6
6 Johnson Service Group PLC Annual Report and Accounts 2017
CHAIRMAN’S STATEMENT
PAUL MOODY
STRONG
ORGANIC
PERFORMANCE
I am delighted to report that the Group has had
another year of significant progress, delivering a
result well ahead of 2016.
Financial Results
Total continuing revenue for the year to 31 December
2017 increased by 13.3% to £290.9 million (2016:
£256.7 million), reflecting the Group’s continuing strong
organic growth performance of 5.1% and contributions
from the acquisitions of PLS in July 2017 and
StarCounty (‘Star’) in December 2017, as well as the full
year benefit of acquisitions completed in 2016. Adjusted
operating profit increased by 14.9% to £43.3 million
(2016: £37.7 million).
The total finance cost was £3.6 million (2016:
£3.9 million) reflecting lower average debt levels and a
reduced notional interest charge of £0.4 million (2016:
£0.6 million) on the Group’s net pension liabilities.
Adjusted profit before taxation increased by 17.5% to
£39.7 million (2016: £33.8 million).
Net exceptional items from continuing operations were
£0.5 million (2016: £1.0 million) and were in respect of
acquisition and subsequent integration activity. The
statutory profit before taxation, after amortisation of
intangible assets (excluding software amortisation) of
£8.0 million (2016: £6.9 million), increased by 20.5% to
£31.2 million (2016: £25.9 million).
Continuing adjusted diluted earnings per share increased
by 14.5% to 8.7 pence (2016: 7.6 pence). Diluted
earnings per share from continuing operations after
amortisation of intangible assets (excluding software
amortisation) and exceptional items increased by 16.9%
to 6.9 pence (2016: 5.9 pence).
Dividend
The Board is pleased to recommend an increased final
dividend to 1.9 pence per share (2016: 1.7 pence), which
reflects the Group’s strong performance and confidence
in the future prospects of the business. Together with the
interim dividend, this takes the total dividend for the year
to 2.8 pence per share (2016: 2.5 pence), an increase of
12.0% year-on-year.
The proposed final dividend, if approved by Shareholders,
will be paid on 11 May 2018 to Shareholders on the
register at close of business on 13 April 2018. The
ex-dividend date is 12 April 2018.
Post-Employment Benefits
The recorded net deficit after taxation for all post-
employment benefit obligations reduced to £9.8 million at
31 December 2017 from £14.8 million at 31 December
2016. The reduction reflects the benefit of strong asset
returns and deficit recovery contributions offset in part by
the net impact of a slight reduction in the discount rate
and small increase in the assumed inflation rate.
Asset allocation remains under constant review with the
Trustee. Changes have been made to more appropriately
match assets against the remaining scheme liabilities and
to reduce interest rate and inflation risks to a more
acceptable level when market dynamics change.
The current agreement with the Trustee of the defined
benefit pension scheme required deficit recovery
payments of £1.9 million in the year to December 2017.
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 was finalised during
the year. Calculated under the more prudent technical
provisions of the scheme, the actuarial deficit had
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.
170435 Johnson Service Group Annual Report Pt1_170435 Johnson Service Group Annual Report Pt1.qxp 02/03/2018 20:33 Page 7
Annual Report and Accounts 2017 Johnson Service Group PLC 7
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Cash flow and banking
Total net debt at the year-end stood at £91.3 million
(31 December 2016: £98.2 million). The Group’s strong
trading performance and cash generation helped to
offset the impact of both the acquisitions we made in the
year and our significant investment in capital expenditure
across the business. Interest cover, based on adjusted
operating profit and excluding notional interest, is
13.5 times (2016: 11.4 times).
The Group remains well funded. A revolving credit facility
of £120.0 million was agreed in April 2016 and runs to
April 2020 and is considerably in excess of the current
anticipated level of borrowings.
Interest payable on bank borrowings is based upon
LIBOR plus a margin which is linked to gearing levels.
The applicable margin during 2017 was, on average,
1.73% (2016: 1.67%) and will remain at a similar level for
at least the first quarter of 2018. We have mitigated our
exposure to increases in LIBOR rates through the use of
interest rate hedging. 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.
“ WE HAVE DELIVERED ANOTHER STRONG
FINANCIAL PERFORMANCE UNDERPINNED BY
SIGNIFICANT ORGANIC GROWTH TOGETHER WITH
GROWTH FROM ACQUISITIONS”
Employees
Our teams across the business have continued to work
with skill, enthusiasm and dedication and have helped
to ensure that our customers receive market-leading
service standards.
The Board would like to thank them for their significant
contribution to the continuing success of the Group.
Board Changes
As announced on 5 December 2017, Peter Egan,
currently Managing Director of our workwear business,
will join the Board on 1 April 2018 as Chief Operating
Officer ahead of assuming the role of CEO. Chris Sander,
the current CEO, has agreed to remain on the Board until
the end of 2018 to ensure a smooth and effective
transition to Peter within that period.
Outlook
During the year Johnson Service Group has continued to
meet its strategic objectives by transforming the Group
into a highly focused Textile Services business. In doing
so, we have delivered another strong financial
performance underpinned by significant organic growth
together with growth from acquisitions, which continue to
extend the geographical coverage of our businesses. The
operational strategy of continuing to invest capital in
modern, highly efficient equipment has helped mitigate
cost pressures and supported margin growth.
The Group’s performance since the year end has been in
line with management expectations and with strong new
business sales, existing strong cash flows and an
established strategy, we remain confident in the year
ahead.
Paul Moody
Chairman
27 February 2018
170435 Johnson Service Group Annual Report Pt1_170435 Johnson Service Group Annual Report Pt1.qxp 02/03/2018 20:33 Page 8
8 Johnson Service Group PLC Annual Report and Accounts 2017
CHIEF EXECUTIVE’S OPERATING REVIEW
CHRIS SANDER
ANOTHER YEAR
OF SUBSTANTIAL
GROWTH
Introduction
The Group reported another year of substantial growth
with both divisions delivering higher levels of new
business wins and maintaining consistently high levels of
customer retention. In line with our strategic objective of
continuing to build a nationwide business, the acquisition
of Professional Linen Services (PLS), a high volume linen
plant based in Edinburgh, provides geographical
extension of our services in Scotland and the North East
of England, whilst the acquisition of StarCounty, based in
Wrexham, provides an excellent platform for the
extension and consolidation of the Stalbridge trading area
in the North West of England.
Following the sale of the Drycleaning division in January
2017, the Group is now entirely focused on textile service
activities, covering Workwear rental and linen services to
the Hotel, Restaurant and Catering (“HORECA”) sectors.
Going forward, we will report on these two Divisions.
The planned capital investment programme was
accelerated during the year in many of our existing
locations to ensure that we both improved efficiencies and
created additional capacity to meet the demands from the
strong organic sales generated throughout the year.
Our Businesses
Our Group now comprises of Textile Service businesses
that trade through a number of very well recognised and
respected brands, servicing the UK’s Workwear and
HORECA sectors. Following the successful integration of
numerous acquisitions over the last five years we now
have several regional brands servicing similar markets.
We have therefore taken the decision to implement a
review to consolidate branding in order to maximise and
extend national brand recognition. We currently anticipate
that this will take up to three years to fully implement and
the associated modest cost will not have a material
impact on the reported earnings of the Group over that
period.
170435 Johnson Service Group Annual Report Pt1_170435 Johnson Service Group Annual Report Pt1.qxp 02/03/2018 20:33 Page 9
122.4m
WORKWEAR REVENUE
Increased 4.0% from
£117.7m in 2016
21.1m
WORKWEAR ADJUSTED
OPERATING PROFIT
Increased 6.0% from
£19.9m in 2016
Annual Report and Accounts 2017 Johnson Service Group PLC 9
In conjunction with this review, work has also
commenced on upgrading and consolidating our
operational IT platforms for both workwear and high
volume linen to ensure that we continue to provide
market leading solutions for our business and our
customers. Design, build and implementation of the
system is expected to be a two year programme utilising
our own in house team of experts.
Workwear Division
The Group’s workwear business provides workwear rental
and laundry services, trading under the ‘Apparelmaster’
brand, to a very large cross section of industry and
commerce, including many large blue chip corporates.
Apparelmaster enjoyed another very strong and
successful year with revenue increasing by 4.0% to
£122.4 million (2016: £117.7 million). Organic growth was
aided by record new sales wins, which were well ahead of
management targets. This reflected the on-going
investment in our sales and marketing department. Almost
15% of the total value of new sales were to those
customers who had previously not had a rental service.
Sales to existing customers also increased and this,
combined with high levels of customer retention at 95.4%
(2016: 94.6%), delivered year on year growth against a
backdrop of an ever changing competitive environment.
The strong new sales combined with production
efficiencies and careful cost control, increased
adjusted operating profit by 6.0% to £21.1 million (2016:
£19.9 million) resulting in an improved margin
of 17.2% (2016: 16.9%).
Our business ethos, which is focused on nationwide
coverage, strong local service and continued investment in
our facilities, has helped us to increase customer
confidence. Customer satisfaction scores, both for our new
and longer term customers, have improved. During the year,
evidence of this confidence was borne through a number
of large national contracts being successfully renewed.
Apparelmaster continues to work closely with its supply
chain and, recognising market trends, has introduced new
food trade and leisurewear ranges. We review our
garment range on an ongoing basis to ensure that we
meet the ever changing needs of customers by keeping
abreast of the latest fashion trends.
In line with our operational strategy, Apparelmaster has
continued to invest in plant and machinery and
commercial fleets, with the emphasis on best in class
equipment to drive production efficiencies and optimise
energy consumption. In particular, the plants at Brighton,
Basingstoke and Letchworth have been upgraded to
increase capacity and efficiency in relation to food
industry garment processing, where growth has been
particularly strong. Further refurbishments to the Hinckley
cleanroom are due to be completed in early 2018. In
total, capital expenditure amounted to £4.5 million (2016:
£5.4 million), with a further £17.9 million (2016:
£16.5 million) on new rental stock.
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10 Johnson Service Group PLC Annual Report and Accounts 2017
CHIEF EXECUTIVE’S OPERATING REVIEW CONTINUED
Computer tablet software enhancements have been
provided to our sales and service staff, which integrate
the sales and service processes and make the face to
face customer experience more productive with faster
and more efficient responses to their business needs.
Further enhancements have been developed and were
launched in January 2018.
The Johnsons Academy, which provides targeted, in-
house training and development for employees, allows
opportunities for further staff development and improves
the skill base of the business. We are pleased with the
success of the Academy and the numbers of staff who
are moving through the business to fill vacant
management positions.
HORECA Division
The Group provides premium linen services to the hotel,
restaurant and catering market through ‘Stalbridge’ and
‘London Linen’ as well as high volume hotel linen services
through ‘Afonwen’, ‘Bourne’ and ‘PLS’.
The total revenue for the HORECA division was up
21.2% to £168.5 million (2016: £139.0 million). This
£29.5 million increase includes contributions from
additional months of trading from acquisitions completed
in both 2016 and 2017. In addition it reflects the one off
benefit of some £2.6 million of revenue for work
processed between February and October 2017 on
behalf of a privately owned laundry whose plant was out
of commission. New business sales throughout the year
were strong, contributing organic growth of 6.0%.
recorded, and reflected actions taken by the management
to improve service and quality levels even further.
Significant capital investments have been made to
support the growth. During the year new washing and
finishing equipment was installed in Grantham, additional
soiled storage and towel drying in Sturminster Newton,
new ironing equipment in Glasgow and increased clean
work and packing space in Shaftesbury.
Further significant investment is planned in early 2018,
both in existing factory locations and in Southall, where
Stalbridge has recently taken on the management of
Caterers Linen Supply. This business was originally
acquired as part of the London Linen Group and had
some common customers with Stalbridge. An additional
factory unit is being developed adjacent to the existing
Southall factory to accommodate future business growth
and a further investment of £3.3 million in processing
equipment will be completed by summer 2018.
At the half year we commented on the need for additional
processing capacity near to the North West of England
and we are pleased to have completed the acquisition of
StarCounty in Wrexham in December. The plant is being
integrated into the Stalbridge business and will provide
processing capacity for servicing our customers in this
area of the UK.
Once the Southall and Wrexham sites are fully
operational they will allow some further consolidation of
distribution and service costs.
Adjusted operating profit increased by £5.0 million to
£26.8 million (2016: £21.8 million) with an operating
margin of 15.9% (2016: 15.7%). The margin in 2017
excluding the benefit from the work processed for the
privately owned laundry referred to above was 15.2%,
still ahead of our expectations.
Revenue at London Linen has also seen strong organic
growth, driven by strong new sales combined with a
number of existing multi location customers continuing to
open additional new sites. A number of contract
extensions were secured on key customers, typically for a
further two or three years.
The HORECA division has continued to invest in
upgrading its plants with the aim of increasing both
capacity and throughput. During the year total
expenditure on plant and equipment amounted to
£12.0 million (2016: £9.2 million) with a further
£25.2 million (2016: £18.0 million) invested in new rental
stock.
Throughout 2017 Stalbridge has built on their previous
successful performance with accelerated revenue and
margin growth, led by impressive new sales wins, which
were significantly ahead of management targets.
Stalbridge’s flexible and responsive approach is very
well received by their clients.
Given that Stalbridge’s operating model has no long term
customer contracts, a real focus is placed on customer
satisfaction and building a reputation for providing very
high service levels. The 2017 customer satisfaction score,
provided by The Leadership Factor, an independent
customer experience consultancy, was the highest yet
Operationally, the main focus of London Linen in the period
was the completion of the £4.5 million capital investment
programme. The investment included a total reorganisation
of the incoming soiled goods sorting system with 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. The
capital investment programme was completed during the
first half of the year, on schedule and on budget. It has
helped to reduce operating costs as well as increasing
production capacity and improving the quality of linen.
The benefits of this investment have been particularly
evident in the run up to the busy Christmas period. These
efficiencies, along with the increased sales, have helped to
offset increasing employment costs, driven by the
higher national living wage and the apprenticeship levy,
together with general upward inflationary pressures, in
particular relating to linen purchases.
The business continues to explore ways that further
capital expenditure can continue to improve capacity,
170435 Johnson Service Group Annual Report Pt1_170435 Johnson Service Group Annual Report Pt1.qxp 02/03/2018 20:33 Page 11
Annual Report and Accounts 2017 Johnson Service Group PLC 11
168.5m
HORECA REVENUE
Increased 21.2% from
£139.0m in 2016
26.8m
HORECA ADJUSTED
OPERATING PROFIT
Increased 23.0% from
£21.8m in 2016
productivity and consistency, including the use of
electronic inspection systems and improvements to our
ironing capability.
The programme to fully co-ordinate the sales and service
functions of the London Linen and London Workwear
brands is almost complete. We believe this initiative will
enhance customer service and streamline product
offerings to customers.
The high volume linen brands of Afonwen, Bourne and
PLS have performed very well throughout 2017. There
has been continued focus on improving the efficiencies
within the transport network by reallocating customers to
their closest operating production facility, which reduces
costs and ultimately improves customer service. The
£3.0 million investment at the Chester laundry was
completed on time and on budget, resulting in significant
improvements to output and efficiency levels and to the
quality of the finished products.
The high volume linen brands are increasingly working
together with a new national accounts management
structure and sales strategy, to further exploit
opportunities with national hotel customers and other
prospects. During the year, and despite the competitive
pressure on pricing, the business continued to
successfully re-tender and agree commercial terms with
an important number of key accounts in its core market
of the budget and corporate 4 star hotel market place. In
addition the business experienced strong customer
loyalty at a time of increased uncertainty amongst some
of our competitors.
In July we also completed the strategically important
acquisition of PLS in Edinburgh, providing us with
capacity and coverage in the Scottish market as well as
strengthening the customer base in North East England.
We are already seeing the benefit of this with additional
business being secured from both existing customers
opening new hotels in the region as well as from new
customers, by virtue of us now being able to cover the
Scottish market place. We are looking to invest in
upgrading production capability over the year ahead, as
well as strengthening our sales team to enable greater
coverage of the Scottish hotel market.
Customer retention has remained high throughout the
year as has overall, customer satisfaction and new
systems and procedures are being introduced to
benchmark performance and identify areas for further
enhancement.
Over the year ahead, we are seeking to further integrate
the Afonwen and Bourne operations with the
appointment of a newly created role of Operations
Director, to help focus the business on continued
integration, operational efficiencies and continuous
improvement across all sites.
Chris Sander
Chief Executive Officer
27 February 2018
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170435 Johnson Service Group Annual Report Pt1_170435 Johnson Service Group Annual Report Pt1.qxp 02/03/2018 20:33 Page 12
12 Johnson Service Group PLC Annual Report and Accounts 2017
FINANCIAL REVIEW
YVONNE MONAGHAN
2017 HAS BEEN A
YEAR OF SIGNIFICANT
INVESTMENT FOR
THE GROUP
This Financial Review should be read in conjunction
with the Group Results, the Chairman’s Statement and
the Chief Executive’s Operating Review, which set out
comments on revenue, earnings and dividends.
Cash Flow
We continue to generate strong cash flows with net cash
generated from operating activities increasing by 7.3% to
£77.9 million (2016: £72.6 million). Of this cash
generation we invested £21.8 million in the purchase of
property, plant and equipment including finance lease
capital payments.
Overview
Revenue and adjusted profit before taxation from
continuing operations increased significantly in 2017
through a combination of acquisitions and organic growth.
We invested £9.2 million, net of cash and debt acquired,
in the acquisitions of PLS and StarCounty, both
businesses serving the hotel, restaurant and catering
linen market.
Details of the segmental results are given in note 1 of the
Consolidated Financial Statements.
Following the disposal of Drycleaning in January 2017
the Group is entirely focused on Textile Rental and we
have therefore considered whether it remains appropriate
to continue reporting all of our Textile Rental business
under a single Reporting Segment.
The Group’s Textile Rental business serves two market
sectors, being Workwear (“Workwear”) and Hotel,
Restaurant and Catering (‘HORECA’). We have
determined that, going forward, Textile Rental will be
reported on the basis of this segmental analysis.
Taxation
The tax rate on adjusted operating profit from Continuing
Operations, excluding exceptional items and the
amortisation of intangible assets (excluding software
amortisation), was 19.1% (2016: 19.8%) and below the
effective tax rate of 19.25% (2016: 20.0%) due, in part, to
the recognition of prior year credits. We would expect our
tax rate to increase to a more normal rate in 2018 and be
slightly above the effective rate of 19%.
The disposal of the Drycleaning business generated cash
proceeds of £7.1 million net of costs of disposal and
settlement of some remaining property liabilities.
Bank Facilities and Finance Costs
The Group’s bank facility was renewed in April 2016 with
the incumbent banks. The facility comprised a Revolving
Credit Facility (‘RCF’) of £120.0 million running to April
2020 together with a short term £30.0 million RCF which
was repaid and cancelled in February 2017.
The current facility provides headroom both in terms of
covenant compliance and availability to allow further
investment to be made by the Group.
Hedging arrangements are in place in order to provide
some certainty over future borrowing costs. Two hedges,
each of £15.0 million, serve to swap LIBOR rates for
1.47% to January 2019 and 1.665% to January 2020
and a further two tranches of £10.0 million serve to swap
LIBOR rates for 0.49% to June 2018 and 0.5525% to
June 2019. The unhedged borrowings will be subject to
LIBOR at market rates at the point of drawdown. Interest
charges include an average margin of 1.73% for 2017.
The margin is subject to a quarterly covenant test and is
dependent upon the gearing ratio at each quarter end
and, based on the actual gearing ratio at December 2017,
will remain at a similar rate for the first quarter of 2018.
170435 Johnson Service Group Annual Report Pt1_170435 Johnson Service Group Annual Report Pt1.qxp 02/03/2018 20:33 Page 13
Annual Report and Accounts 2017 Johnson Service Group PLC 13
Key Performance Indicators (KPIs)
The main KPIs used as part of the assessment of
performance of the Group, and of the individual business,
referred to within this Financial Review, Group Results,
Chairman’s Statement, Chief Executive’s Operating
Review or segmental information on pages 65 to 67 are
growth in revenue, adjusted operating profit and adjusted
diluted earnings per share from Continuing Operations.
Non-financial KPIs include our employee and customer
survey results and customer retention statistics.
Alternative Performance Measures (APMs)
Throughout the Annual Report and Accounts we refer to
a number of APMs. These are ‘adjusted operating profit’
which refers to continuing operating profit before
amortisation of intangible assets (excluding software
amortisation) and exceptional items, ‘Adjusted profit
before taxation’ which refers to adjusted operating profit
less total finance cost, ‘Adjusted EBITDA’, adjusted for
acquisitions and disposals, used for gearing purposes,
which refers to adjusted operating profit for the relevant
period plus the depreciation charge for property, plant and
equipment and software amortisation and ‘Adjusted EPS’
which refers to EPS calculated based on adjusted profit
after tax.
The Board considers that ‘adjusted operating profit’,
‘adjusted profit before taxation’, ‘adjusted EBITDA’ and
‘adjusted EPS’, all of which exclude the effects of non-
recurring items or non-operating events, provide useful
information for Shareholders on underlying trends and
performance.
Summary
The Group is now entirely focused on the Textile Services
market and we continue to be well placed to pursue
further opportunities in Textile Services over the coming
months.
Yvonne Monaghan
Chief Financial Officer
27 February 2018
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Total finance costs in 2017 included £0.4 million (2016:
£0.6 million) of notional interest (non-cash) on post-
employment benefit obligations. This cost is fixed at the
start of each year and is dependent on the level of the
pension deficit at the previous year end. The cost for
2018 is estimated to be £0.3 million.
The bank covenants within the facility agreement measure
interest cover and gearing ratios and contain some
restrictions on pension fund deficit recovery payments.
Investment in Textile Rental Items
Spend on textile rental items increased to £43.1 million
(2016: £34.5 million) reflecting the larger size of the
business following recent acquisition activity together
with strong organic growth. This is a significant annual
investment for the Group and we continue to work closely
with our suppliers to ensure that we have access to
procure adequate levels of new workwear and linen on a
timely basis. Continued investment in textile rental items
is a key requirement in providing a high quality service to
our customers.
Defined Benefit Pension Scheme Liabilities
As at 31 December 2017, the scheme’s assets had
increased by £7.1 million, to £218.6 million after paying
out benefits of £11.7 million. The net deficit has reduced
by £6.1 million to £10.9 million.
The triennial valuation of the scheme, as at 30
September 2016, was finalised during 2017. We have
committed to continue to pay £1.9 million per annum in
deficit recovery payments, in equal monthly instalments.
An additional deficit contribution of £1.5 million was paid
into the scheme on 3 April 2017.
Clearly, the deficit calculated under both the provisions of
IAS19 and under the statutory funding objective is
sensitive to changes in the discount rate, based on
corporate bond or gilt yields as appropriate. The asset
allocation of the scheme is kept under review so that the
impact of a reduction in the discount rate and an increase
in inflation is, at least in part, offset by a corresponding
increase in asset values. In addition the review also
considers alternative asset classes which earn a
reasonable level of return but with lower volatility and
therefore a reduction in risk.
Balance Sheet
Net assets of the Group have increased to £167.6 million
(2016: £147.1 million) through a combination of retained
earnings and reduced pension deficit.
The distributable reserves of the Parent Company are set
out in the Company Statement of Changes in
Shareholders’ Equity on page 101 and are not expected
to influence the determination of future dividend
payments.
290.9m
REVENUE
Increased from £256.7m
in 2016
43.3m
ADJUSTED OPERATING
PROFIT
Increased from £37.7m
in 2016
8.7p
ADJUSTED DILUTED
EARNINGS PER SHARE
Increased from 7.6p
in 2016
77.9m
NET CASH FLOW
Increased from £72.6m
in 2016
170435 Johnson Service Group Annual Report Pt1_170435 Johnson Service Group Annual Report Pt1.qxp 02/03/2018 20:33 Page 14
14 Johnson Service Group PLC Annual Report and Accounts 2017
CORPORATE SOCIAL RESPONSIBILITY STATEMENT
OUR DUTY TO
SHAREHOLDERS
perspective, the executive directors and senior managers
are responsible for implementing behavioural and
governance changes. They are also responsible for clearly
articulating to colleagues in the wider business the
reasons for change, its benefits or the consequences of
not changing, providing encouragement and support to
colleagues to ensure that ethical standards are
maintained and good governance is put into practice.
The success of our business is dependent upon a
strategy which benefits our investors, employees, clients,
suppliers and the wider stakeholder community. We have
invested time and resources in communicating with
employees and designed training and development
programmes to educate and encourage the high
standards of conduct that reflect our vision to be the
market leader in all areas in which we have a major
focus, renowned for our great people, great service and
great results.
Employment Policies
The employment policies of the Group embody the
principles of equal opportunity and are tailored to meet
the needs of its different businesses and the locations in
which they operate.
The Group’s employment policies and procedures are
described in detail in its Staff Handbook, a copy of which
is made available to all employees. This handbook takes
account of relevant employment legislation and best
practice. New policies, procedures and related training
are developed and delivered as required.
We recognise our duty to stakeholders to operate the
business in an ethical and responsible manner. We
are committed to developing our Corporate Social
Responsibility (‘CSR’) agenda, recognising that it can
play a major part in leading and influencing all of our
people and operations.
We work to ensure that we provide the right resources,
energy and focus to meet the expectations of all of our
stakeholders in relation to CSR.
Work Place
We recognise that our people are key to the success of
the Group and we value the contribution of each and
every one of our employees. We strive to create an
inspiring working environment where everyone is
engaged and motivated.
Our Culture
Our corporate culture defines who we are, what we stand
for and how we do business and it is integral to the
success of the Group. Our good reputation has been built
on the solid foundation of an ethical culture, underpinned
by a well-defined and effective system of governance.
The Board defines the purpose of the Group, identifies
the values that guide it and remains committed to
upholding the highest ethical standards, operating on the
principle that the tone at the top sets the standard for the
rest of the business.
Over the years, we have carefully developed a common
set of expected behaviours based on our corporate
values and an effective system of governance, both of
which have been influential in shaping and embedding a
strong ethical and governance culture across the Group.
The Board is responsible for changes to corporate
governance and culture. However, from a practical
170435 Johnson Service Group Annual Report Pt1_170435 Johnson Service Group Annual Report Pt1.qxp 02/03/2018 20:33 Page 15
Annual Report and Accounts 2017 Johnson Service Group PLC 15
Code of Ethics and Bribery
The Group has a written code on business ethics (the
‘Ethics Code’), which is reviewed regularly by the Board
and sets out guidelines for all employees to enable the
Group to meet the highest standards of conduct in
business dealings, including those with overseas
suppliers. On joining the Group, whether by way of
acquisition or otherwise, all employees are made aware
of these standards and procedures to ensure compliance
is achieved.
Senior employees are required to sign an annual
statement of compliance with the Ethics Code. A
dedicated and confidential Whistleblowing hotline service
is available to employees should anyone wish to report
perceived improprieties. Arrangements are in place to
ensure that any reports are followed up and the
appropriate action taken.
The Group’s anti-bribery policy sets out how employees
must act to ensure that our zero tolerance approach to
bribery and corruption is upheld.
Modern Slavery Act (the ‘Act’)
Our business principles lay down the standards we set
ourselves to ensure we operate lawfully, with integrity and
with respect for others. As part of this, we are committed
to implementing and enforcing effective systems and
controls to ensure slavery and human trafficking is not
taking place anywhere in our supply chain or in any part
of our business. We fully acknowledge our responsibility
to respect human rights as set out in the International Bill
of Human Rights and we are also committed to
implementing the United Nations Guiding Principles on
Business and Human Rights throughout our operations.
Wherever possible, we expect suppliers to have suitable
anti-slavery and anti-human trafficking policies and
processes within their businesses and to cascade those
policies to their own suppliers. Our standard supplier
contractual terms and conditions are in the process of
being revised so as to include a provision requiring
suppliers (and each of their sub-contractors) to comply
with the Act. The standards we expect will address a
broad spectrum of working conditions including fair
remuneration, working hours, no child labour, respect,
non-discrimination, health, safety and wellbeing, as well
as freedom from forced labour.
As part of any tender process, we will ask prospective
suppliers to confirm compliance with the Act at the pre-
qualifying questionnaire stage. We will not progress to
working with any supplier which does not comply with the
Act. We will also commence an audit programme, initially
on a risk based approach, within our existing supply chain
to verify compliance with the Act and throughout the life
cycle of any supply agreement we reserve the right to
conduct audits on our supplier contracts. We will assess
any instances of non-compliance on a case-by-case
basis, taking any remedial action accordingly.
All new employees are subject to pre-employment
checks to confirm their identity and eligibility to work in
the UK prior to their starting work within the Group.
Information is provided to all employees on their statutory
rights including sick pay, holiday pay and any other
benefits they may be entitled to by virtue of their
employment. We pay all directly employed labour at least
the living or minimum wage, as appropriate. Where
recruitment agencies are used, we ensure they comply
with all legal requirements. These procedures collectively
help to address our on-going commitment to protect our
employees’ human rights and the elimination of all forms
of forced and compulsory labour.
To ensure a high level of understanding of the risks of
modern slavery and human trafficking in our supply chain
and our business, all Directors have been briefed on the
subject and we provide training to relevant members of
staff. Through this training, as well as through Group wide
internal communications, all employees are encouraged
to identify and report any potential or actual wrongdoing
that they consider to be negligent, improper or illegal via a
dedicated and confidential Whistleblowing hotline, which
is available 24 hours a day.
Diversity
We are committed to equal opportunities and the creation
of an entirely non-discriminatory working environment.
The aim of our diversity policy is to ensure that no job
applicant, or employee, receives less favourable treatment
because of, amongst other matters, gender, marital
status, race, age, sexual orientation, religion, belief or
disability. All decisions are based on the merits of the
individual concerned. The Group is dedicated to
undertaking its business operations in a way which
respects individual human rights, treats individuals with
dignity and allows freedom of association.
Procedures are in operation to support the Group’s policy
that disabled persons, whether registered or not, shall be
considered for employment and subsequent training,
career development and promotion on the basis of their
aptitudes and abilities. Where members of staff become
disabled every effort is made to ensure that they are
retrained according to their abilities.
Employee Communication
Each business takes responsibility for fostering employee
engagement through appropriately structured
communications, training and incentive arrangements.
Employee views are sought by management and taken
into consideration when making decisions that may affect
the employees’ interests. A broader understanding of the
Group and opportunities within it are made available to
employees through a Group wide magazine.
Share Schemes
Our Sharesave Plan, which has been in operation since
1987, fulfils our desire for employees to be able to share
in the performance and success of the Group as a whole.
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16 Johnson Service Group PLC Annual Report and Accounts 2017
CORPORATE SOCIAL RESPONSIBILITY STATEMENT CONTINUED
Environment
We recognise our responsibilities to achieve good
environmental practice and to continue to strive for
improvement in areas of environmental impact. Our
approach is to work through education, communication
and direct action wherever possible.
Board Responsibility
The Board is aware of its responsibilities with regard to
the environment, receives regular reports on all
environmental matters and has nominated Chris Sander,
Chief Executive Officer, as the Director responsible for
such matters.
Environmental Risk Assessment
Potential areas of risk are identified through the Group’s
risk assessment programme and mitigated wherever
possible. Each business undertakes quantitative audits
which enable a measure of environmental improvement
to be made. The Operating Companies have achieved, or
are working towards, ISO 14001:2004 Environmental
Management System Certification.
Greenhouse Gas Emissions & Carbon Footprint
The Group is party to a Climate Change Agreement
(CCA), is constantly looking for new ways to reduce its
carbon footprint and has put various initiatives in place,
including continued investment in energy efficient capital
equipment and the gradual rollout of passive ultra low
energy LED lighting.The Group is party to a Climate
Change Agreement (CCA), is constantly looking for new
ways to reduce its carbon footprint and has put various
initiatives in place, including continued investment in
energy efficient capital equipment and the gradual rollout
of passive ultra-low energy LED lighting.
Furthermore, the majority of cars available to employees
as part of the Group’s car scheme are currently subject to
a CO2 restriction of 130g/km. The average CO2 of our
non-commercial fleet as at the end of 2017 reduced to
100g/km from 103g/km at the end of 2016 with 88%
(2016: 82%) of vehicles having a CO2 of 110g/km or
less. Further detail is provided in the table below:
CO2 Emissions (g/km)
2017
2017 Cum.
2016
2016 Cum.
< 95
96 to 110
111 to 130
131 to 160
28%
60%
8%
4%
28% 22%
88% 60%
96% 14%
22%
82%
96%
100%
4%
100%
Community
The Group believes that the interests of responsible
businesses need to be aligned to the interests of the
local communities where they operate and to that end,
give back to the community where we can, contributing to
charitable causes and local groups.
170435 Johnson Service Group Annual Report Pt1_170435 Johnson Service Group Annual Report Pt1.qxp 02/03/2018 20:33 Page 17
Annual Report and Accounts 2017 Johnson Service Group PLC 17
Health and Safety
The Board is aware of its responsibilities on all matters
relating to the health, safety and welfare of employees,
visitors and customers on Group premises, and to others
affected by the Group’s activities.
Board Responsibility
The Board takes its responsibilities seriously with regard
to health and safety and has nominated Chris Sander,
Chief Executive Officer, as the Director responsible for
such matters.
Health and safety matters are a permanent agenda item
at all Group and subsidiary Board Meetings. A summary
report outlining the Group’s activities is provided on a
regular basis for Group Board Meetings, including up to
date statistics relating to accidents and incidents that
have occurred since the last report.
Health and Safety Policies
All of our businesses are required to have clearly defined
health and safety policies and procedures relevant to
their operations and risks. They are required to implement
all defined policies and procedures into the work
environment which are audited annually by Group
representatives to ensure that they are fit for purpose.
These audits, the results of which are notified to the
Board, are in addition to each business’ own protocols.
The Group health and safety policy statement is brought
to the attention of all employees and copies of the
statement are available upon request to all interested
parties.
Safety Management Systems
We consider health and safety management as an
integral part of good management generally, rather than
as a standalone system. In order to enable comparable
reporting across the Group, each of our businesses are
required to have a Safety Management System,
appropriate to their operations, that is in accordance with
the guidance contained within either the internationally
recognised ‘Occupational Health and Safety Assessment
Specification’ standard (OHSAS 18001) or the Health
and Safety Executive’s ‘Managing for Health and Safety’
guide (HSG65).
All new companies acquired by the Group undergo a
stringent audit of their existing Safety Management System
in order to establish compliance with appropriate legislation
and Group policy; any shortcomings are rectified, on a risk-
based approach, as soon as is practicable.
Health and safety monitoring processes are in place
across the Group, carried out by a dedicated centralised
team whose primary objective is to ensure that safety
standards are met. The same team also undertakes
horizon scanning to keep abreast of and inform new
safety legislation.
All of our businesses have arrangements in place to
consult with employees on matters which may affect their
health and safety. The Group is in regular contact with
regulatory bodies both directly, and via industry trade
associations. The health and safety performance of each
business is collectively benchmarked against other
companies operating in similar business sectors.
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18 Johnson Service Group PLC Annual Report and Accounts 2017
PRINCIPAL RISKS AND UNCERTAINTIES
“We believe that effective risk management is critical to the achievement of our strategic objectives
and the long term sustainable growth of our business. The Board continues to take a proactive
approach to recognising and mitigating risk with the aim of protecting its employees and customers
and safeguarding the interests of the Group and its stakeholders”.
Our Approach to Risk Management
The Board has overall accountability for ensuring that risk is effectively
managed across the Group and, on behalf of the Board, the Audit
Committee coordinates and reviews the effectiveness of the Group’s risk
management process. In determining its risk appetite, the Board
recognises that a prudent and robust approach to risk mitigation must be
carefully balanced with a degree of flexibility so that the entrepreneurial
spirit which has greatly contributed to the success of the Group is not
inhibited. Both the Board and the Audit Committee remain satisfied that
the Group’s internal risk control framework continues to provide the
necessary element of flexibility without compromising the integrity of risk
management and internal control systems.
Risks are reviewed by all of our businesses on an ongoing basis and are
measured against a defined set of likelihood and impact criteria. This is
captured in consistent reporting formats enabling the Audit Committee
to review and consolidate risk information and summarise the principal
risks and uncertainties facing the Group. Wherever possible, action is
taken to mitigate, to an acceptable level, the potential impact of identified
principal risks and uncertainties.
The Board formally reviews the most significant risks facing the Group at
its February and August meetings, or more frequently should new matters
arise. Throughout 2017, the overall risk environment remained largely
unchanged from that reported within the Group’s 2016 Annual Report.
The principal risks and uncertainties affecting the Group are highlighted
below, together with details on how the Board takes action to mitigate
each risk. These risks and uncertainties do not comprise all of the risks
that the Group may face and are not listed in any order of priority.
Additional risks and uncertainties not presently known to the Board, or
deemed to be less material at the date of this Annual Report, may also
have an adverse effect on the Group. These include risks resulting from
the UK’s decision to leave the EU which could adversely affect the
economic and political environment as well as affecting financial risks
such as liquidity and credit. The Board views the potential impact of
Brexit as an integral part of its principal risks rather than a stand-alone
risk. However, there is still significant uncertainty about the withdrawal
process, its timeframe, and the outcome of negotiations about future
arrangements between the UK and the EU, and the period for which
existing EU laws for member states will continue to apply to the UK.
Therefore, although the risks related to Brexit have been discussed by
the Board, it remains too early to properly understand the impact on the
business whilst negotiations continue to take place. The Board will
continue to assess the risk to the business as the Brexit process evolves.
In accordance with the provisions of the UK Corporate Governance
Code, the Board has taken into consideration the principal risks and
uncertainties in the context of determining whether to adopt the going
concern basis of preparation and when assessing the future prospects
of the Group.
eview Controls
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Annual Report and Accounts 2017 Johnson Service Group PLC 19
Financial Risk
Cost Inflation
Mitigation
Our objective is always to deliver the right level of service in the most
efficient way. An increase in the cost of labour or supplies could constitute
a risk to our ability to maintain margin. The introduction of the National
Living Wage in April 2016 had a material impact on our cost base and will
continue to do so.
We seek to manage the impact of legislative changes and cost inflation by
continuing to drive greater efficiencies through supplier rationalisation,
labour scheduling and productivity.
Cost indexation in certain of our contracts also gives us the contractual
right to review pricing with our customers.
Economy
Our business could be susceptible to adverse changes in, inter alia,
economic conditions and customer spending habits, which could impact
our profitability and cash flow.
Given the diversity of our customer base and the various industries which
we serve, it is generally possible to contain the impact of these adverse
conditions. Each business continually reviews its routes to market, changes
in customer demands and expectations and cost base so that it can react
appropriately to the impact of the wider economy.
Any adverse impact on cash flow could be mitigated in the short term by
controls over capital expenditure.
Interest Rate Fluctuations
The Group finances its operations through a mixture of retained profit,
bank borrowings and lease arrangements. Fluctuations in the rates of
applicable interest could adversely impact the profitability and cash flows
of the Group.
The Group borrows at both fixed and floating rates and normally has
hedging arrangements in place to provide fixed rate interest payments for a
proportion of its floating rate debt over a specified period. This enables the
Group to forecast borrowing costs with a degree of certainty.
At 31 December 2017 all of the Group’s bank borrowings incurred interest
at rates linked to LIBOR, although hedging arrangements are in place
which replace LIBOR with fixed rates of 1.4725% and 1.665%, each over
a £15.0 million tranche of borrowings, until January 2019 and January
2020 respectively, and two further hedging arrangements which replace
LIBOR with fixed rates of 0.49% and 0.5525%, each over a £10.0 million
tranche of borrowings, until June 2018 and June 2019 respectively,
providing certainty over part of the Group’s interest cash flows.
Liquidity Risk
Our key sources of liquidity in the foreseeable future are likely to be cash
generated from operations and borrowings through committed bank
facilities. Adverse changes in credit markets or our credit rating could
increase the cost of borrowing and banks may be unwilling to renew credit
facilities on existing terms.
The Group’s policy on liquidity is to ensure that it has committed bank
facilities available to provide continuity of funding. Appropriate bank
facilities are in place through to April 2020.
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20 Johnson Service Group PLC Annual Report and Accounts 2017
PRINCIPAL RISKS AND UNCERTAINTIES CONTINUED
Financial Risk
Taxation
Mitigation
UK businesses are faced with increasingly demanding tax compliance and
tax reporting requirements which, in turn, increase the risk that transactions
or business relationships may have unforeseen adverse tax consequences
giving rise to additional tax costs, increased administration and an
increased likelihood of negative publicity.
The Group has published its Tax Risk Management Strategy (‘Tax
Strategy’), which sets out our approach to tax risk management and tax
planning. Approved by the Board, the Tax Strategy states that the Board is
ultimately responsible for the management of tax and related risk. In
furtherance to this, the Audit Committee monitors the integrity of the
Group’s financial reporting systems, internal controls and risk management
framework, including those elements relating to taxation.
The Group does not enter into any transactions solely to take advantage of
tax opportunities - all transactions are based on the commercial objectives
of the Group. Furthermore, where legislation is unclear or judgement may
be required, the Group makes use of external tax professionals, who have
extensive knowledge of the business, to discuss the most appropriate tax
position to take. The Group also seeks to develop strong, proactive
relationships with HMRC based on transparency and trust.
Operational Risk
Failure of Strategy
Mitigation
Our current business model sets out our intentions to expand the Group by
actively pursuing strategic acquisition opportunities within the Textile
Services market. Failure to identify suitable targets, or failure to
successfully integrate them, would adversely impact our growth plans.
There is considerable knowledge and expertise within the Group with
regard to acquisitions. An experienced acquisition team, together with
external advisors where appropriate, is involved in all acquisition activity and
we have a proven track record of successfully integrating businesses into
the wider Group.
Customers
For our businesses to grow organically, we are reliant on securing and
retaining a diverse range of customers. A reliance on any one particular
customer or group of customers may present a risk to the future cash
flows of the Group should they not be retained.
We have strategies which strengthen our long term relationships with our
customers based on quality, value and innovation. Regular customer
feedback surveys are undertaken across the Group and, where applicable,
appropriate action taken.
Adverse economic conditions may lead to an increased number of our
customers and clients being unable to pay for existing or additional
products and services.
Our business model is structured so that we are not reliant on one
particular customer or group of customers.
The Group has limited concentration of credit risk with regard to trade
receivables given the diverse and unrelated nature of the Group’s
customer base.
Competition
We operate in a highly competitive marketplace. Aggressive pricing from
our competitors could cause a reduction in our revenues and margins.
We aim to minimise this by continuing to promote our differentiated
propositions and focusing on our points of strength, such as transparency
of our pricing, flexibility in our cost base, quality and value of service
and innovation.
170435 Johnson Service Group Annual Report Pt1_170435 Johnson Service Group Annual Report Pt1.qxp 02/03/2018 20:33 Page 21
Annual Report and Accounts 2017 Johnson Service Group PLC 21
Operational Risk
Loss of a Processing Facility
Mitigation
The loss of a key processing facility could result in significant disruption to
our business due to the high utilisation of plant capacity.
A wide geographic spread of processing facilities mitigates the effect of a
temporary loss of any single facility.
Retention and Motivation of Employees
As a service orientated Group, retaining and motivating the best people
with the right skills, at all levels of the organisation, is key to the long term
success of the Group. Short term disruption could occur if a key member of
our team was unavailable at short notice, either on a temporary or
permanent basis.
Information Systems and Technology
The digital world creates many risks for a business including technology
failures, loss of confidential data and damage to brand reputation.
Furthermore, insurance cover is in place such that the increased cost of
working following a loss of processing capacity may, in some
circumstances, be recovered.
The Group has established training, development, performance
management and reward programmes to retain, develop and motivate
our people.
The Group regularly reviews the adequacy and strength of its management
teams to ensure that appropriate experience and training is given such that
there is not over reliance on any one individual.
Furthermore, the Group has continued to develop succession planning as
part of the development programmes for our people.
We seek to assess and manage the effectiveness of our security
infrastructure and our ability to effectively defend against current and
future cyber risks by using analysis tools and experienced professionals to
evaluate and mitigate potential impacts.
We are focused on the need to maximise the effectiveness and security of
our information systems and technology as a business enabler and to
reduce both cost and exposure as a result.
Regulatory Risk
Health and Safety
Mitigation
Health and safety in the workplace is an extremely important consideration
for an employer. Legislation is complex and failure to ensure that our
employees remain safe at work may lead to serious business interruption
and potential damage to our reputation.
The Group has policies, procedures and standards in place to ensure
compliance with legal obligations and industry standards. Regular health
and safety audits and risk assessments are undertaken across the Group.
All management meetings throughout the Group feature a health and
safety update as an agenda item.
Compliance and Fraud
Ineffective management of compliance with laws and regulations, or
evidence of fraud, could have an adverse effect on the Group’s reputation
and could result in an adverse impact on the Group’s performance if
significant financial penalties are levied or a criminal action is brought
against the Company or its Directors.
The Group’s zero tolerance based Code of Ethics govern all aspects of our
relationships with our stakeholders. All alleged breaches of the Code,
including any allegations of fraud, are investigated.
The Group’s procedures include regular operating reviews, underpinned by
a continual focus on ensuring the effectiveness of internal controls.
Regulation and compliance risk is also considered as part of our annual
business planning process.
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22 Johnson Service Group PLC Annual Report and Accounts 2017
BOARD OF DIRECTORS
Paul Moody (age 60)
Chairman
Paul was appointed Non-Executive Chairman on
1 May 2014 having joined the Board as a
Non-Executive Director on 10 March 2010.
Prior to his retirement on 26 February 2013,
Paul was the Chief Executive of Britvic PLC.
Having joined Britvic in 1996, and prior to his
appointment as CEO, Paul held the positions of
Chief Operating Officer and Sales and
Operations Director. Prior to that, he held a
number of senior appointments in varied roles in
HR and sales with such companies as Mars Inc.
and Grand Metropolitan. Paul is also currently
the Non-Executive Chairman of 4imprint Group
PLC and a Non-Executive Director of Pets at
Home Group PLC.
Chris Sander (age 59)
Chief Executive Officer
Chris was appointed as Chief Executive Officer
on 3 January 2014. He joined the Group in
1984 and has significant experience in the
Textile Services industry. Chris was appointed
Managing Director of the Textile Rental
business on 1 January 2008, joined the Board
on 9 September 2008 and assumed
responsibility for the Drycleaning business as
part of the combined Textile Services division in
2012. Chris is also a Director of the European
Textile Services Association.
Yvonne Monaghan (age 59)
Chief Financial Officer
Yvonne has significant experience in the
Textile Services industry having joined the
Group as Group Management Accountant in
1984 after qualifying as a Chartered
Accountant with Deloitte Haskins and Sells.
She was appointed as Company Secretary and
Group Financial Controller in 1985 and joined
the Board as Chief Financial Officer on 31
August 2007. Yvonne is also a Non-Executive
Director and Chair of the Audit Committee of
NWF Group plc.
Bill Shannon (age 68)
Senior Independent Non-Executive Director
Bill joined the Board as a Non-Executive
Director on 8 May 2009. He is a Chartered
Accountant (Scotland) and, after qualifying,
began his career with Whitbread PLC in 1974,
where he served as a Board Director for 10
years until his retirement in 2004. Bill has
significant PLC board experience, and is
currently Non-Executive Chairman of St.
Modwen Properties PLC and Deputy Chairman
of LSL Property Services PLC (where he is
also Chairman of both the Nomination
Committee and Remuneration Committee),
having previously served as Non-Executive
Chairman of Aegon UK PLC and Non-
Executive Director of Rank Group PLC, Barratt
Developments PLC and Matalan PLC.
Nick Gregg (age 54)
Independent Non-Executive Director
Nick joined the Board as a Non-Executive
Director on 1 January 2016. Nick has
considerable experience in business to
business service industries having been
Managing Director of the Local Government
division of Ferrovial-owned public services
business Amey, Managing Director of Biffa
Waste Services Collections Division and
Managing Director of ATS Euromaster
(Michelin). Nick’s early career was spent at
Mobil Oil Company, leaving as Managing
Director of the UK business, having previously
held roles in sales, marketing and operations as
well as key project roles in finance and IT. Nick
is also the Non-Executive Chairman of
Transport for Wales.
Tim Morris (age 41)
Company Secretary
Tim was appointed as Company Secretary
on 1 January 2014, in addition to his existing
role of Group Financial Controller. Having
qualified as a Chartered Accountant with
KPMG LLP in 2003, Tim joined the Group in
2005 as Group Financial Accountant. He also
held the position of Finance Director at SGP
Property & Facilities Management Limited prior
to the Group disposing of that business in
August 2013.
170435 Johnson Service Group Annual Report Pt2_170435 Johnson Service Group Annual Report Pt2 02/03/2018 20:41 Page 23
Annual Report and Accounts 2017 Johnson Service Group PLC 23
DIRECTORS’ REPORT
The Directors have pleasure in presenting their Annual Report and the
audited Consolidated and Company financial statements for the year
ended 31 December 2017.
The Corporate Governance Report on pages 26 to 30, and the
Corporate Social Responsibility Report on pages 14 to 17 (with regard
to information about the employment of disabled persons, employee
involvement and share schemes) are also incorporated into this Report
by reference.
Principal Activities and Business Overview
The principal activities and business overview of the Group are set out
within the Strategic Review.
Results and Dividends
The Group retained profit after taxation for the year from all operations
amounted to £25.7 million (2016: £20.6 million).
The dividend comprises an interim dividend of 0.9 pence (2016:
0.8 pence) per Ordinary share and a proposed final dividend of
1.9 pence (2016: 1.7 pence) per Ordinary share. This total dividend of
2.8 pence (2016: 2.5 pence) per Ordinary share, subject to the approval
of Shareholders, will amount to a distribution for the year of £10.3 million
(2016: £9.1 million).
Share Capital
The Companies Act 2006 no longer requires companies to have an
authorised share capital.
The total issued share capital at the end of the year and the outstanding
share options are given in notes 26 and 27 to the Consolidated financial
statements.
Acquisitions and Discontinued Operations
Details of acquisitions and discontinued operations during the current
and preceding year are given in notes 31 and 32 to the Consolidated
Financial Statements.
Events after the Reporting Period
There were no events occurring after the balance sheet date that require
disclosing in accordance with IAS10, ‘Events after the reporting period’.
Major Interests in the Company’s Share Capital
At 31 December 2017 the Company had been advised of the
following interests, of a material nature, in its share capital:
PrimeStone Capital LLP
Old Mutual Plc
BlackRock Inc
Invesco Limited
Janus Henderson Group PLC
Schroders plc
Canaccord Genuity Group Inc
Shareholding (%)
12.29%
11.81%
6.43%
6.18%
5.00%
Below 5%
3.51%
The information provided above was correct as at the date of notification,
however, it should be noted that these holdings may have changed since
the Company was notified. Notification of any change is not required
until the next notifiable threshold is crossed. Where we are aware of
significant changes in shareholdings these have been adjusted.
There have been no changes since 31 December 2017 and the date of
this report.
Shareholders’ Authority for the Purchase by the Company of its own Shares
At the 2017 Annual General Meeting, Shareholders authorised the
Company to make market purchases of up to a maximum aggregate of
36,522,477 Ordinary shares, which represented approximately 10% of
the Company’s issued Ordinary share capital on the latest practicable
date prior to publication of the 2017 Notice of Annual General Meeting.
The minimum price allowed for such purchases is 10 pence and the
maximum is 105% of the average of the middle market quotation of
such shares for the five business days immediately preceding the day of
purchase. Except for amending the maximum number of shares subject
to the authority, the Directors intend to seek renewal of this authority,
which is due to expire at the conclusion of the 2018 Annual General
Meeting. Further details are given in the Notice of the Annual General
Meeting.
Directors
Details of the Directors of the Company are shown on page 22. They all
held office throughout the year, and up to the date of approving this
report.
As previously announced on 5 December 2017, Peter Egan, currently
Managing Director of our Johnsons Apparelmaster workwear business
(‘Apparelmaster’), will be appointed to the Board of Directors as Chief
Operating Officer (‘COO’) with effect from 1 April 2018, ahead of
assuming the role of Chief Executive Officer (‘CEO’).
Directors’ Interests
Share Capital
The interests of the Directors who were in office at 31 December 2017,
together with the interests of their close family, in the shares of the
Company at the commencement or, if later, date of appointment, and
close of the financial year are disclosed in the Board Report on
Remuneration. Details of the Company’s interest in its own shares are
disclosed in note 29 to the Consolidated Financial Statements.
Contracts
None of the Directors have any material interests in contracts of the
Company or the Group.
Directors’ Indemnity
In accordance with the Articles of Association and to the extent
permitted by the laws of England and Wales, the Directors are granted
an indemnity from the Company in respect of liabilities incurred as a
result of their office. In respect of those matters for which the Directors
may not be indemnified, the Company maintained a directors’ and
officers’ liability third party insurance policy throughout the financial year
and up to the date of approval of these financial statements. Neither the
indemnity nor the insurance provides cover in the event that a Director is
proven to have acted dishonestly or fraudulently. No claim was made
under this provision during the year.
Articles of Association
The Company’s Articles of Association may only be amended by Special
Resolution at a general meeting of the Shareholders.
Political Donations
It is the Company’s policy not to make political donations. The Directors
confirm that no donations for political purposes were made during the
year (2016: £nil).
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170435 Johnson Service Group Annual Report Pt2_170435 Johnson Service Group Annual Report Pt2 02/03/2018 20:41 Page 24
The Group currently has adequate financial resources and long term
relationships with a number of customers and suppliers across many
industries throughout the UK. The Group’s 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 this report.
A statement on the future prospects of the Group is included within the
Strategic Review.
By order of the Board
Tim Morris
Company Secretary
27 February 2018
Johnson Service Group PLC Registered in England and Wales No.523335
24 Johnson Service Group PLC Annual Report and Accounts 2017
DIRECTORS’ REPORT CONTINUED
Independent Auditors
The auditors, PricewaterhouseCoopers LLP (‘PwC’), have indicated their
willingness to continue in office. In accordance with the recommendation
of the Audit Committee, as disclosed on page 33, and as required by
Section 489 of the Companies Act 2006, a resolution to reappoint the
auditors will be proposed at the Annual General Meeting.
Policy on Payment to Suppliers
The Company and its subsidiaries fully support, and have continued to
apply, the Prompt Payment Code (‘PPC’) in respect of all suppliers. The
PPC sets standards for payment practices and best practice and is
administered by the Chartered Institute of Credit Management. The main
features of the PPC are that payment terms are agreed at the outset of
a transaction and are adhered to; that there is a clear and consistent
policy that bills will be paid in accordance with the contract; and that
there are no alterations to payment terms without prior agreement.
Regulations made under Section 3 of the Small Business, Enterprise and
Employment Act 2015 introduced a requirement on the UK’s largest
companies to report on a half-yearly basis their payment practices,
policies and performance. The Group is required to publish information
for the period January 2018 to June 2018 by the end of July 2018. The
information will be published through an online service provided by the
Government, and will be available to the public.
Financial Risk Management
The Directors acknowledge that the Group’s activities expose it to a
variety of financial risks, including interest rate risk, credit risk and
liquidity risk. The Group’s overall risk management programme focuses
on the unpredictability of financial markets and seeks to minimise
potential adverse effects on the Group’s financial performance. Risk
management is carried out centrally under policies approved by the
Board. Further details are set out on pages 63 to 64.
Half Yearly Reporting
The Company 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.
2018 Annual General Meeting
The Company’s AGM will be held at the Doubletree by Hilton Chester,
Warrington Road, Hoole, Chester, CH2 3PD on Thursday 3 May 2018 at
11am. An explanation of the resolutions to be proposed at the meeting is
included in the Notice of Annual General Meeting accompanying this
Annual Report.
Going Concern
The Group’s business activities, together with the factors likely to affect
its future development, performance and position are set out in the
Strategic Review, Chairman’s Statement and Chief Executive’s Operating
Review. The financial position of the Group, its cash flows, liquidity
position and borrowing facilities are described in the Financial Review. In
addition, note 24 to the Consolidated Financial Statements includes the
Group’s objectives, policies and processes for managing its capital, its
financial risk management objectives, details of its financial instruments
and hedging activities, and its exposure to credit risk and liquidity risk.
170435 Johnson Service Group Annual Report Pt2_170435 Johnson Service Group Annual Report Pt2 02/03/2018 20:41 Page 25
Annual Report and Accounts 2017 Johnson Service Group PLC 25
DIRECTORS’ RESPONSIBILITIES STATEMENT
In the case of each Director in office at the date the Directors’ Report is
approved;
➔ so far as the Director is aware there is no relevant audit information
of which the Group and Parent Company’s auditors are unaware; and
➔ they have taken all the steps that they ought to have taken as a
Director in order to make themselves aware of any relevant audit
information and to establish that the Group and Parent Company’s
auditors are aware of that information.
On behalf of the Board
Chris Sander
Chief Executive Officer
27 February 2018
Yvonne Monaghan
Chief Financial Officer
27 February 2018
The Directors are responsible for preparing the Annual Report and
Accounts in accordance with applicable law and regulation.
Company law requires the Directors to prepare financial statements for
each financial year. Under that law the Directors have prepared the
Group and Parent Company financial statements in accordance with
International Financial Reporting Standards (IFRSs) as adopted by the
European Union. Under company law the Directors must not approve the
financial statements unless they are satisfied that they give a true and
fair view of the state of affairs of the Group and Parent Company and of
the profit or loss of the Group and Parent Company for that period.
In preparing the financial statements, the Directors are required to:
➔ select suitable accounting policies and then apply them consistently;
➔ make judgements and accounting estimates that are reasonable and
prudent;
➔ state whether applicable IFRSs as adopted by the European Union
have been followed, subject to any material departures disclosed and
explained in the financial statements; and
➔ prepare the financial statements on the going concern basis unless it
is inappropriate to presume that the Group and Parent Company will
continue in business.
The Directors are responsible for keeping adequate accounting records
that are sufficient to show and explain the Group and Parent Company’s
transactions and disclose with reasonable accuracy at any time the
financial position of the Group and Parent Company and enable them to
ensure that the financial statements comply with the Companies Act
2006 and, as regards the Group financial statements, Article 4 of the
IAS Regulation. The Directors are also responsible for safeguarding the
assets of the Group and Parent Company and hence for taking
reasonable steps for the prevention and detection of fraud and other
irregularities.
The Directors are responsible for the maintenance and integrity of the
Parent Company’s website. Legislation in the United Kingdom governing
the preparation and dissemination of financial statements may differ
from legislation in other jurisdictions.
The Directors consider that the Annual Report and Accounts, taken as a
whole, is fair, balanced and understandable and provides the information
necessary for Shareholders to assess the Group and Parent Company’s
performance, business model and strategy.
Each of the Directors, whose names and functions are disclosed on
page 22, confirms that, to the best of their knowledge:
➔ the Group and Parent Company financial statements, which have
been prepared in accordance with IFRSs as adopted by the
European Union, give a true and fair view of the assets, liabilities,
financial position and profit or loss of the Group and Parent
Company; and
➔ the Strategic Report includes a fair review of the development and
performance of the business and the position of the Group and
Parent Company, together with a description of the principal risks and
uncertainties that it faces.
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170435 Johnson Service Group Annual Report Pt2_170435 Johnson Service Group Annual Report Pt2 02/03/2018 20:41 Page 26
26 Johnson Service Group PLC Annual Report and Accounts 2017
CORPORATE GOVERNANCE REPORT
“We are committed to high standards of corporate governance which we
consider are critical to business integrity and to maintaining investors’ trust in
us. We expect all our directors, employees and suppliers to act with honesty,
integrity and fairness. Our business principles set out the standards we set
ourselves to ensure we operate lawfully, with integrity and with respect for
others”.
All companies with a Premium Listing of equity shares in the UK are
required under the Listing Rules to comply with the Financial Reporting
Council’s UK Corporate Governance Code 2016 (the ‘Code’) or, state
the areas in which they do not comply. The Code is intended to enhance
the quality of information investors receive about the long-term health
and strategy of listed companies, and raises the bar for risk
management. The Code can be accessed on the Financial Reporting
Council’s website: https://www.frc.org.uk.
Our Governance Structure
The Code is a guide to a number of key components of effective board
practice, the main principles, or sections, being:
➔ Leadership
➔ Effectiveness
➔ Accountability
➔ Remuneration
➔ Relations with Shareholders
As a Company trading on AIM, Johnson Service Group PLC is not
required to comply with the Code. Notwithstanding this, the Board does
expect all directors, employees and suppliers to act with honesty, integrity
and fairness and our business principles set out the standards we set
ourselves to ensure that we operate lawfully, with integrity and with
respect for others. The Board is committed to high standards of
corporate governance, which it considers are critical to business integrity
and to maintaining investors’ trust, and as a result has reviewed the
procedures to comply with the provisions and principles of the Code,
which are set out below.
Chairman - Paul Moody
Key objectives:
• leadership, operation and governance of the Board
• setting the agenda and direction for the Board
The Board of Johnson Service Group PLC
Membership currently comprises the Chairman, two Executive Directors and two
independent Non-Executive Directors (including the Senior Independent Director)
Chairman: Paul Moody
Key objectives:
• responsible for the overall conduct of the Group’s business
• setting the Group’s strategy
Audit Committee
Nomination Committee
Remuneration Committee
Membership comprises the Chairman
and Non-Executive Directors
Membership comprises the Chairman
and Non-Executive Directors
Membership comprises the Chairman
and Non-Executive Directors
Chief Executive Officer
Chris Sander
Chairman: Bill Shannon
Key objectives:
• management of the Group’s system
of internal control, business risks
and related compliance activities
• to review the activity and
performance of the internal audit
function and external auditors
• to provide effective governance
over the Group’s financial results
Chairman: Paul Moody
Key objectives:
• to ensure the Board comprises
individuals with the necessary skills,
knowledge and experience
• to give consideration to succession
planning and the leadership needs
of the Group
Chairman: Nick Gregg
Key objective:
• to assess and make
recommendations to the Board on
the policy of executive remuneration
Key objectives:
• responsible for the overall
management of the business
• responsible for the implementation of
strategy and policy
Group Management Board
Membership comprises the two Executive Directors, divisional Managing
Directors and Group function heads
Chairman: Chris Sander
Key objectives:
• implementation of the Board’s strategy
• monitoring financial and competitive performance
• business development and projects
• succession planning across the business
170435 Johnson Service Group Annual Report Pt2_170435 Johnson Service Group Annual Report Pt2 02/03/2018 20:41 Page 27
Annual Report and Accounts 2017 Johnson Service Group PLC 27
Compliance with the Code
The Company has complied with the provisions and principles of the
Code throughout the year ended 31 December 2017, other than the
provision in relation to the following:
Provision Explanation
E.1.1 Non-attendance by the Senior Non-Executive Independent Director
(SID) at meetings with major Shareholders
The Chief Executive Officer and the Chief Financial Officer
regularly meet with the Company’s major Shareholders and the
Board is of the opinion that additional regular meetings, other
than those specifically requested by Shareholders, with the
SID would not assist further in dialogue with Shareholders. The
SID, and also the Chairman, are available to meet with
Shareholders, at their request, and the Board believes this
arrangement to be sufficient.
Section A: Leadership
Main principles:
➔ Every company should be headed by an effective board which is
collectively responsible for the long-term success of the company.
➔ There should be a clear division of responsibilities at the head of
the company between the running of the board and the executive
responsibility for the running of the company’s business. No one
individual should have unfettered powers of decision.
➔ The chairman is responsible for leadership of the board and
ensuring its effectiveness on all aspects of its role.
➔ As part of their role as members of a unitary board, non-executive
directors should constructively challenge and help develop
proposals on strategy.
Composition of the Board
The Board currently consists of the Non-Executive Chairman (the
‘Chairman’), two Executive Directors and two Independent
Non-Executive Directors. The Independent Non-Executive Directors are
considered to be independent in character and judgement and are a
strong element within the Board, with their views carrying significant
weight in the decision making process.
Members of the Board, who are detailed on page 22, all held office
throughout the year and up to the date of approving this report.
Division of Responsibility of Chairman and Chief Executive Officer
The Code requires that there is a clear division of responsibility between
the Chairman and the Chief Executive Officer, each of which has clearly
defined roles. The Chairman should be responsible for the effective
running of the Board whilst the Chief Executive Officer is responsible for
operating the business and implementing the Board’s strategies and
policies.
The role of the Chairman is set out in writing and agreed by the Board.
The Chairman is responsible for:
➔ the effective leadership, operation and governance of the Board;
➔ ensuring the effectiveness of the Board;
➔ setting the agenda, style and tone of Board discussions; and
➔ ensuring the directors receive accurate, timely and clear information.
The role of the Chief Executive Officer is set out in writing and agreed by
the Board. The Chief Executive Officer is responsible for:
➔ management of the Group’s business;
➔ implementation of the Group’s strategy and policies;
➔ maintaining a close working relationship with the Chairman; and
➔ chairing the Group Management Board meetings.
Responsibilities of the Board
The Board, in addition to routine consideration of both financial and
operational matters, determines the strategic direction of the Group. The
Board has a formal schedule of matters specifically reserved for its
decision which can only be amended by the Board itself.
The specific responsibilities reserved for the Board include:
➔ development and approval of the Group’s long-term objectives, overall
strategy, mission, vision, values and targets;
➔ approval of the annual budget;
➔ monitoring of operational and financial performance against plans
and budgets;
➔ approval of major acquisitions, disposals and capital expenditure;
➔ design and approval of dividend policy;
➔ approval of appointments to the Board and of the Company
Secretary;
➔ consideration of succession planning for key members of the
management team; and
➔ determining the terms of reference for the Board committees.
Key Board Activities in the Year
Key activities of the Board in the current year included, inter alia:
➔ approval of the disposal of the Group’s Drycleaning business,
announced in January 2017;
➔ the review and approval of the Group’s investment in PLS, acquired in
July 2017;
➔ the review and approval of the Group’s investment in StarCounty,
acquired in December 2017;
➔ the review and approval of the half year and full year financial
statements;
➔ the review and approval of major capital and investment projects;
➔ ongoing monitoring of the Group’s Health and Safety performance;
➔ ongoing monitoring of the Group’s progress in preparing for the
General Data Protection Regulation;
➔ regular review, and formal approval in February and August, of the
Group’s risk assessment processes and principal risks and
uncertainties; and
➔ approving the recommendation of the Nomination Committee to
appoint Peter Egan as successor to Chris Sander in the role of Chief
Executive Officer.
Board Committees
The Committees of the Board are:
➔ the Audit Committee;
➔ the Nomination Committee; and
➔ the Remuneration Committee.
Current membership of each Committee consists wholly of the Chairman
and the two Independent Non-Executive Directors. Each Committee has
written terms of reference, which are available on the Company’s
website. Separate reports for each of these Committees are included in
this Annual Report.
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170435 Johnson Service Group Annual Report Pt2_170435 Johnson Service Group Annual Report Pt2 02/03/2018 20:41 Page 28
28 Johnson Service Group PLC Annual Report and Accounts 2017
CORPORATE GOVERNANCE REPORT CONTINUED
Group Management Board
The Group Management Board meets under the chairmanship of the
Chief Executive Officer. Topics covered by the Group Management
Board include:
➔ an update by the Chief Executive Officer on the business and
business environment;
➔ divisional Managing Director updates;
➔ Group function heads’ updates;
➔ substantial business developments and projects;
➔ talent and succession planning;
➔ competitor analysis; and
➔ strategy.
Annually, the Group Management Board conducts a strategic review to
identify key issues, plans and objectives to be presented to the Board.
The agreed strategy is then used as a basis for developing the upcoming
budget and three year operating plans.
Section B: Effectiveness
Main principles:
➔ The board and its committees should have the appropriate
balance of skills, experience, independence and knowledge of the
company to enable them to discharge their respective duties and
responsibilities effectively.
➔ There should be a formal, rigorous and transparent procedure for
the appointment of new directors to the board.
➔ All directors should be able to allocate sufficient time to the
company to discharge their responsibilities effectively.
➔ All directors should receive induction on joining the board and
should regularly update and refresh their skills and knowledge.
➔ The board should be supplied in a timely manner with information
in a form, and of a quality, appropriate to enable it to discharge its
duties.
➔ The board should undertake a formal and rigorous annual
evaluation of its own performance and that of its committees and
individual directors.
➔ All directors should be submitted for re-election at regular
intervals, subject to continued satisfactory performance.
Induction, Training & Knowledge
Appropriate training is available to Directors upon appointment and as
required on an ongoing basis. Furthermore, on appointment, Directors
participate in a customised induction programme to familiarise them with
the Group.
The Directors have access to the advice and services of the Company
Secretary and it is acknowledged that individual Directors may wish to
seek independent professional advice in connection with their
responsibilities and duties. The Company will meet reasonable expenses
incurred in this regard.
Supply of Information
To assist the Board in performing its responsibilities, information,
appropriate in quality and timeliness, is received in an agreed format, for
each scheduled Board meeting.
Performance Evaluation
Each year, the Independent Non-Executive Directors conduct a
performance evaluation of the Chairman, after taking into account the
views of the Executive Directors. The Chairman also conducts an
appraisal of each member of the Board, Board composition and the
format and effectiveness of the Board meetings. In addition, the
Remuneration Committee regularly reviews Executive Director
performance in connection with their performance objectives.
The Board conducted an internal Board evaluation during the year. This
process was led by the Chairman and covered, inter alia:
➔ performance of the Board (including consideration of how the Board
works together as a unit);
➔ processes which underpin the Board’s effectiveness (including
consideration of the balance of skills, experience, independence and
knowledge of the persons on the Board);
➔ performance of the Audit, Nomination and Remuneration
Committees; and
➔ individual performance (giving consideration to whether each director
continues to contribute effectively and show commitment).
The Chairman holds individual discussions with each Director. The results
of those discussions (including progress against the previous year’s
recommended actions) are summarised by the Chairman and considered
in detail by the Board. This year’s review found that performance of the
Board and its Committees continued to be effective in dealing with both
day-to-day and ongoing strategic issues and that the Board and
Committee structure ensured that the governance requirements of the
business were met.
As a result of these reviews, it is considered that the performance of
each Director continues to be effective and that each Director
demonstrates sufficient commitment to their role.
Board Meetings and Attendance
The Board met formally six times during 2017 and, additionally, held a further two unscheduled meetings in relation to, inter alia, acquisition related
matters and to consider and approve the recommendation of the Nomination Committee to appoint, with effect from 1 April 2018, Peter Egan to the
Board of Directors as Chief Operating Officer ahead of him assuming the role of CEO.
Individual attendance at the meetings, including Audit Committee, Nomination Committee and Remuneration Committee attendance, is set out in the
table below. Where n/a appears in the table, the individual is not a Committee member.
Paul Moody
Chris Sander
Yvonne Monaghan
Bill Shannon
Nick Gregg
Number of Meetings
Board
(Scheduled)
Board
(Unscheduled)
Audit
Committee
Nomination
Committee
Remuneration
Committee
(Scheduled)
Remuneration
Committee
(Unscheduled)
6
6
6
6
6
6
2
2
2
2
2
2
3
n/a
n/a
3
3
3
3
n/a
n/a
3
3
3
3
n/a
n/a
3
3
3
1
n/a
n/a
1
1
1
In addition, the Chairman and the Independent Non-Executive Directors have met during the year without the Executive Directors.
170435 Johnson Service Group Annual Report Pt2_170435 Johnson Service Group Annual Report Pt2 02/03/2018 20:41 Page 29
Annual Report and Accounts 2017 Johnson Service Group PLC 29
Re-election of Directors
For non-FTSE 350 companies, the Code recommends that all Directors
are required to retire and submit themselves for re-election every three
years and all newly appointed Directors are required to retire and submit
themselves for re-election at the first Annual General Meeting of the
Company following their appointment.
Notwithstanding this, and in the interests of good corporate governance,
the Directors have resolved that, each year, all Directors will retire and
offer themselves for re-election, if they wish to continue serving and are
considered by the Board to be eligible. Accordingly, each member of the
Board who served during the year will be proposed for re-election at this
year’s Annual General Meeting of the Company.
Biographical details of all the Directors are set out on page 22 and are
also available for viewing on the Company’s website (www.jsg.com).
Service Agreements
The service agreements of the Executive Directors and copies of the
letters of appointment of the Chairman and the Independent Non-
Executive Directors are available for inspection during business hours on
any weekday (excluding Saturdays, Sundays and public holidays) at the
registered office of the Company and will be available for inspection for
fifteen minutes prior to, and during, the Annual General Meeting.
The work undertaken by the Audit Committee helps to enable the Board
to make the below statements relating to internal control and the going
concern statement on page 24.
Further information is detailed in the Audit Committee Report.
Internal Control
The Board is responsible for the Group’s system of internal control and
for reviewing its effectiveness, which has been undertaken during the
year. Such a system is designed to manage, rather than eliminate, the
risk of failure to achieve business objectives and can only provide
reasonable and not absolute assurance against material misstatement or
loss.
There is an on-going process for identifying, evaluating and managing
the Group’s principal risks and uncertainties that has been in place
throughout the year ended 31 December 2017 and up to the date of
approval of the financial statements. This process has been regularly
reviewed by the Board. The Audit Committee receives reports setting out
key performance and risk indicators and considers possible control
issues brought to its attention through early warning mechanisms which
are embedded within our businesses and are reinforced by risk
awareness training.
The Audit Committee also receives regular reports from the internal audit
function and, recommendations for improvement are considered.
External Appointments
The Executive Directors may accept outside appointments provided that
such appointments do not in any way prejudice their ability to perform
their duties as Executive Directors of the Company. The commitments of
each Executive Director are set out on page 22.
The Board’s agenda includes a bi-annual consideration, or more
frequently if appropriate, of risk and control and it receives reports
thereon from the Audit Committee. The emphasis is on obtaining the
relevant degree of assurance and not merely reporting by exception. The
main features of the internal control framework are detailed below.
The role of an Independent Non-Executive Director requires a time
commitment in the order of 15 days per year plus additional time as
necessary to properly discharge their duties. There is no restriction on
outside appointments provided that they do not prevent the Directors
from discharging their responsibilities effectively.
Section C: Accountability
Main principles:
➔ The board should present a fair, balanced and understandable
assessment of the company’s position, performance and
prospects.
➔ The board is responsible for determining the nature and extent of
the principal risks it is willing to take in achieving its strategic
objectives. The board should maintain sound risk management
and internal control systems.
➔ The board should establish formal and transparent arrangements
for considering how they should apply the corporate reporting, risk
management and internal control principles and for maintaining an
appropriate relationship with the company’s auditor.
Audit Committee
The Board should present a fair, balanced and understandable
assessment of the Group’s position, performance and prospects,
maintaining sound risk management and internal control systems and
managing an appropriate relationship with the Company’s auditors. The
Board has delegated day to day responsibility for these matters to the
Audit Committee.
Financial Reporting
There is a detailed budgeting process with the annual budget both
challenged, stress tested and, ultimately, approved by the Board. Monthly
financial results, together with updated forecasts as appropriate, are
reported against the corresponding figures for the budget and the
previous year with corrective and/or investigative action initiated by the
Board as appropriate.
Treasury Management
The Group’s treasury activities are operated within Board approved
guidelines. Facilities are approved by the Board and all transactions are
controlled and monitored. Monthly summaries of treasury management
activities are prepared for the Board. Speculative transactions are not
undertaken.
Risk Management
The identification of business risks is carried out in conjunction with
operating management and reviewed by the Audit Committee and the
Board. The Board regularly assesses the financial implications and
effectiveness of the control process in place to mitigate or eliminate
these risks. The Group has insurance cover where it is considered
appropriate and cost effective.
Financial Control
Each business maintains financial controls and procedures appropriate
to its own operating environment. The Group has a centralised internal
audit function, which can second additional resources from around the
Group, and which reviews the systems and procedures within each
business and reports regularly to the Audit Committee. A review of
control procedures is undertaken in respect of all new acquisitions, within
the first three months of ownership where possible, and action taken
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30 Johnson Service Group PLC Annual Report and Accounts 2017
CORPORATE GOVERNANCE REPORT CONTINUED
➔ hosting investors and analyst sessions at which senior management
from relevant businesses deliver presentations which provide an
overview of each of the individual businesses and operations; and
➔ attendance by senior executives across the business at relevant
meetings throughout the year.
The Board is of the opinion that additional routine meetings with the
Senior Independent Director would not assist further in the dialogue with
Shareholders, however, the Senior Independent Director is available to
meet with Shareholders, at their request.
Feedback is provided to the Board on any issues raised at these
meetings. External brokers’ reports are circulated to the Directors. The
Shareholders’ views of the investor meetings following the interim and
final results are obtained by the Group’s broker and circulated to the
Board.
The Board welcomes private and Institutional Shareholders to the Annual
General Meeting, which is normally attended by all Directors, to discuss
appropriate topics during the meeting or with the Directors after the
formal proceedings have ended. The Board considers that the
Preliminary Announcement, the Annual Report, including the Chief
Executive’s Operating Review and the Financial Review which are
contained therein, the Interim Report and trading update statements
made during the year present a balanced and clear assessment of the
Group’s position and prospects.
The Audit Committee Report and the Nomination Committee Report on
pages 31 to 36 also form part of the Corporate Governance Report.
By order of the Board
Tim Morris
Company Secretary
27 February 2018
where necessary to bring the controls up to the level required by the
Group. The Group has clearly defined guidelines for the review and
approval of capital expenditure projects. These include annual budgets
and designated levels of authority.
Robust Risk Assessment
Throughout the year, and as described further on pages 18 to 21, the
Board has carried out a robust assessment of the principal risks and
uncertainties facing the Group, including those that would threaten its
business model, future position, performance, solvency or liquidity.
Future Prospects
The Board have assessed the future prospects of the Group in
accordance with provision C.2.2 of the Code. Based on the results of this
analysis, the Board have a reasonable expectation that the Group will be
able to continue in operation and meet its liabilities as they fall due over
the 36 month period of their assessment. Details of the assessment
performed by the Board, including an assessment of those risks most
likely to impact the Group’s future prospects have been set out on
pages 4 to 5.
Section D: Remuneration
Main principles:
➔ Executive directors’ remuneration should be designed to promote
the long-term success of the company. Performance-related
elements should be transparent, stretching and rigorously applied.
➔ There should be a formal and transparent procedure for
developing policy on executive remuneration and for fixing the
remuneration packages of individual directors. No director should
be involved in deciding his or her own remuneration.
Remuneration Committee
The Remuneration Committee is responsible for overseeing the policy
regarding executive remuneration. Further details are outlined in the
Board Report on Remuneration, on pages 37 to 44.
Section E: Relations with Shareholders
Main principles:
➔ There should be a dialogue with shareholders based on the
mutual understanding of objectives. The board as a whole has
responsibility for ensuring that a satisfactory dialogue with
shareholders takes place.
➔ The board should use general meetings to communicate with
investors and to encourage their participation.
Investor Relations
We are committed to communicating our strategy and activities clearly to
our Shareholders and, to that end, we maintain an active dialogue with
investors through a planned programme of investor relations activities.
The investor relations programme includes:
➔ formal presentations of full year and half-year results;
➔ briefing meetings with major institutional Shareholders after the half-
year results and preliminary statement, to ensure that the investor
community receives a balanced and complete view of our
performance and the issues we face;
➔ regular meetings between institutional investors and analysts and the
Chief Executive Officer and Chief Financial Officer to discuss
business performance;
170435 Johnson Service Group Annual Report Pt2_170435 Johnson Service Group Annual Report Pt2 02/03/2018 20:41 Page 31
Annual Report and Accounts 2017 Johnson Service Group PLC 31
➔ monitoring, reviewing and concluding upon the system of internal
control, including the work of internal audit;
➔ ensuring the maintenance of a control environment and the
appropriate management of risk;
➔ recommendation of appointment of, and liaison with, the external
auditor;
➔ reviewing and setting the terms of engagement and the remuneration
of the external auditor;
➔ annual review and monitoring of the external auditor’s independence
and objectivity and the effectiveness of the audit process;
➔ development and implementation of policy on the engagement of the
external auditor to supply non-audit services;
➔ reviewing the Group’s systems and controls for the prevention and
detection of fraud or bribery; and
➔ reviewing of arrangements under which employees may, in
confidence, raise concerns about possible improprieties in matters of
financial reporting or other matters ensuring that arrangements are in
place for the proportionate and independent investigation and
appropriate follow-up action.
The Committee reports to the Board on how we have discharged our
responsibilities.
The full terms of reference are available on the Company’s website, or on
request to the Company Secretary.
What the Committee did in 2017
In 2017, the Committee discharged its responsibilities by:
➔ reviewing the Group’s draft financial statements, preliminary
announcements and interim results statement prior to Board approval
and reviewing the external auditor’s reports thereon;
➔ reviewing and considering the significant issues in relation to the
financial statements, as further detailed on page 32;
➔ reviewing the plan of the external auditor for the audit of the
Consolidated and Company financial statements, confirmations of
auditor independence and proposed audit fee, approving terms of
engagement for the audit and considering the reappointment of PwC
as auditor;
➔ considering and agreeing the annual internal audit plan;
➔ reviewing internal audit’s progress and reports on its work during the
year;
➔ considering the review of material business risks, including reviewing
internal control processes used to identify and monitor principal risks
and uncertainties;
➔ reviewing the Executive and Non-Executive Directors’ expenses;
➔ monitoring the reporting, and follow up of items reported, on the
employee hotline established in line with the Code of Ethics; and
➔ reviewing the Committee’s composition and confirming that there is
sufficient expertise and resource for it to fulfil its responsibilities
effectively.
The Committee considered the 2017 Annual Report and Accounts in
the context of whether they were fair, balanced and understandable and
were able to report to the Board that the 2017 Annual Report and
Accounts, when taken as a whole, were fair, balanced and
understandable on the basis that the description of the business agrees
with our own understanding, the risks reflect the issues that concern us,
appropriate weight has been given to the ‘good and bad’ news, the
discussion of performance properly reflects the ‘story’ of the year and
that there is a clear and well-articulated link between all areas of
disclosure.
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AUDIT COMMITTEE REPORT
Section C of the Financial Reporting Council’s UK Corporate Governance Code 2016
(the ‘Code’) requires that:
➔ the board should present a fair, balanced and understandable
assessment of the company’s position, performance and
prospects;
➔ the board is responsible for determining the nature and extent of
the principal risks it is willing to take in achieving its strategic
objectives. The board should maintain sound risk management
and internal control systems; and
➔ the board should establish formal and transparent arrangements
for considering how they should apply corporate reporting, risk
management and internal control principles and for maintaining an
appropriate relationship with the company’s auditor.
The Board has delegated day to day responsibility for these matters to
the Audit Committee (the ‘Committee’) and this report sets out how the
Committee has discharged its responsibilities.
Members of the Committee have continued to take an active role
including spending time with the operations teams in the field and also
participating in key discussions on areas of financial judgement. These
actions have allowed the Committee to have an even greater input and
to develop greater awareness of the day-to-day challenges that the
business faces and the potential consequences of such challenges.
Set out below are details on the processes in place to safeguard the
independence and objectivity of our relationship with the external auditor
and the role played by internal audit to ensure we have effective control
and risk management processes.
Composition of the Committee
The Committee meets at least three times per year and also meets in
private with the external auditors. The Committee was chaired during the
year by myself, with Paul Moody (Chairman of the Company) and Nick
Gregg (Independent Non-Executive Director) both being members of the
Committee. As Paul Moody was considered independent on appointment
as Chairman of the Company, membership of the Committee is in
accordance with the Code.
During the year a formal evaluation of the Committee was conducted by
means of a questionnaire being sent to members of the Committee. The
responses were reviewed by myself and, where appropriate, actions to
improve the effectiveness of the Committee are agreed and
implemented accordingly. The results of these reviews were discussed
by the Board as a whole, with action taken as appropriate.
By virtue of my former executive and current non-executive roles (full
details of which are set out on page 22), together with the results of the
above evaluation, the Board considers that I have recent and relevant
financial experience. The Board further concluded that the Committee,
as a whole, has sufficient competence relative to the sector in which the
Company operates.
Responsibilities of the Committee
The Committee is responsible for:
➔ ensuring that the interests of Shareholders are protected in relation
to financial reporting and internal control;
➔ monitoring the financial reporting process and the integrity of the
annual and interim financial statements;
➔ monitoring any formal announcements relating to the Company’s
financial performance;
➔ reviewing and challenging, as necessary, the judgements and actions
of management in relation to the financial statements;
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32 Johnson Service Group PLC Annual Report and Accounts 2017
AUDIT COMMITTEE REPORT CONTINUED
Significant Matters Considered in Relation to the Financial Statements
During the year the Committee, management and the external auditor
considered and concluded on what the significant risks and matters
were in relation to the financial statements and how these would be
addressed.
Segment Reporting
Prior to its disposal on 4 January 2017, the Drycleaning business
comprised a single reporting segment with all other operating
businesses being reported within the ‘Textile Rental’ reporting segment.
In addition, the Group also provided analysis for two further reporting
segments: ‘Discontinued Operations’ and ‘All Other Segments’. As a
result of the Drycleaning disposal, the Committee considered whether it
remained appropriate to continue reporting under the remaining
segments.
The Committee discussed the aggregation criteria set out within IFRS 8,
‘Operating Segments’, which allows for two or more operating segments
to be combined as a single reporting segment if:
(1)
aggregation provides financial statement users with information
that allows them to evaluate the business and the environment in
which it operates; and
they have similar economic characteristics (e.g. similar long-term
average gross margins would be expected) and are similar in each
of the following respects:
➔ the nature of the products and services;
➔ the nature of the production processes;
➔ the type or class of customer for their products and services;
➔ the methods used to distribute their products or provide their
(2)
services; and
➔ the nature of the regulatory environment (i.e. banking, insurance
or public utilities), if applicable.
After careful consideration, the Committee deemed it appropriate to
introduce two new reporting segments (in addition to ‘Discontinued
Operations’ and ‘All Other Segments’), being:
(1) Workwear: comprising of our Apparelmaster business only; and
(2) Hotel, Restaurants and Catering (‘HORECA’): comprising of our
Stalbridge, London Linen, Afonwen (including PLS) and Bourne
businesses, each of which are a separate operating segment.
The Committee’s rationale for aggregating the Stalbridge, London Linen,
Afonwen and Bourne operating segments into a single reporting
segment is set out below:
➔ the gross margins of each operating segment are within a similar
range, with the long-term average margin expected to further align;
➔ the nature of the customers, products and production processes of
each operating segment are very similar;
➔ the nature of the regulatory environment is the same due to the
similar nature of products, processes and customers involved; and
➔ distribution is via exactly the same method across each operating
segment.
The 2017 segmental analysis has, therefore, been prepared as
described above and, in accordance with IFRS 8, the 2016 segmental
analysis has been adjusted to reflect the position had these changes
been in place throughout the year ended 31 December 2016.
Acquisition Accounting
During the year, the Group acquired 100% of the share capital of
Clayfull Limited (trading as Professional Linen Services) and 100% of
the share capital of StarCounty Textile Services Limited.
The Committee considered the methodology and assumptions used by
management in determining the fair value of the customer contracts and
customer relationships acquired, as this was considered by the
Committee to be the area of most significant judgement. The Committee
were satisfied that the fair value had been calculated based upon
relevant historical and prospective information and financial data specific
to each business combination, with an appropriate discount factor
applied. The Committee further considered the accounting policy
alignment adjustments and, again, considered them to be reasonable.
The Committee also reviewed the proposed disclosures relating to the
acquisitions for inclusion within the Annual Report and Accounts and
were in agreement that the requirements of IFRS 3, ‘Business
Combinations’ had been satisfied.
Post-employment Benefit Obligations
The valuation of all post-employment benefit obligations is based on
statistical and actuarial calculations, using various assumptions including
discount rates, inflation, life expectancy of scheme members and cash
commutations. The Committee reviewed the actuarial assumptions
underpinning the valuation and were satisfied that all assumptions are
within ranges considered generally acceptable given the size,
demographic and duration of the Group scheme.
Accounting for Complex Customer Arrangements
As in previous years, the Group offers rebates to certain customers
based on agreed fixed rates relating to the volume of services provided
and goods purchased. The Committee does not consider the Group’s
rebates to be highly complex as: they are volume related; there are
generally written agreements in place; and historical estimates of rebates
have been seen to be accurate. However, following current FRC
guidance; this has been highlighted as an area of focus. The Committee
has discussed any judgements made in accruing customer rebates with
management and the auditors. The Committee is satisfied that the
amounts of expense accrued are appropriate.
Income Taxes
Judgement is required in determining the provision for income taxes as
there are many transactions and calculations for which the ultimate tax
determination is uncertain during the ordinary course of business. The
Committee discussed the effective tax rate for the year and noted that it
was lower than the standard rate of UK taxation, primarily as a result of
adjustments made in respect of prior years and changes to the UK tax
rate, offset, to a lesser extent, by the effect of expenses that were not
deductible for tax purposes. The Committee concluded that the
judgements made in relation to taxation were reasonable.
Going Concern
The Committee considered the Group’s going concern review, in
particular, the appropriateness of key judgements, assumptions and
estimates underlying the budgets that underpin the review, together with
a review of the level of forecast available headroom against the Group’s
committed borrowing facilities and compliance with key financial
covenants.
After making enquiries, the Committee were satisfied that the Group has
adequate resources to continue in operational existence for the
12 months from the date of approval of this Annual Report and
Accounts and that, for this reason, the Group should continue to adopt
the going concern basis in preparing the financial statements.
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Annual Report and Accounts 2017 Johnson Service Group PLC 33
Assessment of External Auditor Effectiveness
The Committee reviewed the external auditor’s performance and on-
going independence, taking into account input from management,
consideration of responses to questions from the Committee and the
audit findings reported to the Committee.
Based on this information the Committee concluded that the external
audit process was operating effectively and PricewaterhouseCoopers
LLP (‘PwC’) continued to prove effective in its role as external auditor.
Appointment of the External Auditor and Approach to how Objectivity and
Independence are Safeguarded
The Company has adopted a policy on the independence of the auditor
which is consistent with the ethical standard published by the Financial
Reporting Council. A key issue for the Committee that may impair auditor
independence, and the auditor’s objective opinion on the Group’s
financial statements, is the engagement of the external auditor for the
provision of non-audit services.
Non-Audit Services
The Committee has adopted a policy on the engagement of the external
auditor for the provision of non-audit services and reviews this annually.
The policy is designed to ensure that such engagements do not result in
the creation of a mutuality of interest between the external auditor and
the Company, that a transparent process and reporting structure is
established to enable the Committee to monitor policy compliance and
that unnecessary restrictions on the engagement of the external auditor
for non-audit services is avoided where the provision of advice is
commercially sensible. The policy categorises the provision of non-audit
services into three areas:
➔ normally performed by the auditor;
➔ may be performed by the auditor; and
➔ normally performed by another provider.
With reference to this policy, the selection of professional service firms
for non-audit work is at the discretion of management, taking into
account which firm is best placed to perform such work to meet the
interests of the Company and Shareholders and with regard to ensuring
that independence is not compromised.
The total fees payable to the external auditor in respect of the year under
review amount to £481,000 (2016: £683,000), of which £199,000
(2016: £324,000) related to non-audit services. Of these non-audit
services, fees of £147,000 (2016: £101,000) related to tax compliance
and advisory services and fees of £31,000 (2016: £197,000) related to
one-off and non-recurring services, largely in relation to the acquisition of
Clayfull Limited (trading as Professional linen Services) and StarCounty
Textile Services Limited (2016: acquisition of Zip Textiles (Services)
Limited, Chester Laundry Limited and Portgrade Limited and also the
disposal of the retail drycleaning business), in each case where it was
considered by the Committee to be commercially sensible and more cost
effective to use PricewaterhouseCoopers LLP rather than an alternative
provider. Further details are set out in Note 3 to the consolidated
financial statements.
Independence Safeguards
The external auditor is required to adhere to a rotation policy whereby
the Senior Statutory Auditor (audit engagement partner) is rotated after
five years. The current Senior Statutory Auditor was appointed in 2015
and, in accordance with best practice and professional standards, will be
replaced no later than 2020. The external auditor is also required to
assess periodically whether, in their professional opinion, they are
independent and those views are shared with the Committee. The
Committee has authority to take independent advice, as it determines
necessary, in order to resolve issues on auditor independence. No such
advice was required during the year.
Independence Assessment by the Committee
PwC have been the Company's auditors from the date of the Company's
incorporation, which exceeds the 20 years stated within recent EU
legislation, and no formal tender has taken place since that date. In
assessing and concluding upon the independence of PwC the
Committee take this period of tenure into account, however, the
Committee is satisfied that the independence of the external auditor is
not impaired due to the fact that the audit engagement partner and
senior staff rotation policy has been complied with, the level of fees paid
for non-audit services was of a level that does not present any on-going
threat to their independence and separate external firms are appointed
for certain other advisory services. In addition, the Committee meets with
the external auditor during the year without the presence of
management and I have had regular contact with the audit engagement
partner during the year.
Re-appointment of the External Auditor
The re-appointment of PricewaterhouseCoopers LLP as the Group’s
external auditor was reviewed during the year. The Committee has
assessed the performance, objectivity and independence of the external
auditor, which underpins its recommendation to the Board to propose to
shareholders the re-appointment of PricewaterhouseCoopers LLP as
auditor until the conclusion of the AGM in 2019. Full details are set out
in the Notice of Annual General Meeting on pages 114 to 123. There
are no contractual restrictions over choice of auditor.
Role of Internal Audit
Internal audit has a Group-wide remit and is independent of the business
operations. It undertakes an on-going programme to provide assurance
on the adequacy of internal control and risk management processes
across the Group’s operations. Internal audit is responsible for reviewing
and reporting on the effectiveness of internal controls and risk
management systems to the Committee and, ultimately, the Board.
Internal audit attend Committee meetings to present the findings of such
reviews at regular intervals throughout the year and report on
performance against the agreed annual internal audit plan, such plans
being agreed during the year by the Committee.
Internal Control and Risk Management
The Board is ultimately responsible for the overall system of internal
control for the Group and for reviewing its effectiveness. The Board has
delegated day to day responsibility for this to the Committee. The
Committee carries out a review, at least annually, covering all material
controls, including financial, operational and compliance controls, and the
risk management systems. The system of internal control is designed to
mitigate, rather than eliminate, the risk of failure to achieve business
objectives and can only provide reasonable and not absolute assurance
against material misstatement or loss.
There is an on-going process for identifying, evaluating and managing
the Group’s significant risks that has been in place throughout the
financial year and up to the date of approval of the financial statements.
The Committee receives reports setting out key performance and risk
indicators and considers possible control issues brought to its attention
by early warning mechanisms which are embedded within the
operational units and reinforced by risk awareness training.
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34 Johnson Service Group PLC Annual Report and Accounts 2017
AUDIT COMMITTEE REPORT CONTINUED
The key elements of the Group’s on-going processes for the provision of
effective internal control and risk management systems, in place
throughout the year and at the date of this Report, include:
➔ regular Board meetings to consider matters reserved for Directors’
consideration;
➔ regular management reporting, providing a balanced assessment of
key risks and controls;
➔ an annual Board review of corporate strategy, including a review of
material business risks and uncertainties;
➔ established organisational structure with clearly defined lines of
responsibility and levels of authority;
➔ an internal audit function which implements the annual internal audit
plan and provides independent assurance to management, the
Committee and the Board on the effectiveness of internal controls
and risk management;
➔ documented policies and procedures;
➔ regular review by the Board of financial budgets, forecasts and
covenants with performance reported to the Board monthly; and
➔ a detailed investment process for major projects, including capital
investment coupled with a post investment appraisal analysis.
In reviewing the effectiveness of the system of internal control the
Committee has:
➔ received six-monthly reports, compiled by the Company Secretary
following discussion with key senior managers, that set out the key
risks facing the Group and indicate whether controls and risk
management processes in each business unit have operated
satisfactorily. These returns are reviewed in detail, challenged where
appropriate and approved by the Committee for use in the Annual
Report;
➔ regularly reviewed the financial and accounting controls;
➔ reviewed the internal audit reports; and
➔ monitored management’s responsiveness to the findings and
recommendations of internal audit.
No significant failings or weaknesses were identified.
In respect of Group financial reporting, the finance department is
responsible for preparing the Group financial statements using a well-
established consolidation process and ensuring that accounting policies
are in accordance with International Financial Reporting Standards.
There is a detailed budgeting process with an annual budget both
challenged and approved by the Board. Monthly results are reported
against the corresponding figures for the budget and the previous year
with corrective action initiated by the Board as appropriate. All financial
information published by the Group is subject to approval by the
Committee.
The Group’s treasury activities are operated within Board approved
guidelines. Facilities are approved by the Board and all transactions are
controlled and monitored. Monthly summaries of treasury management
activities are prepared for the Board. Speculative transactions are not
undertaken.
There have been no changes in the Company’s internal control over
financial reporting during the year under review that have materially
affected, or are reasonably likely to materially affect, the Company’s
control over financial reporting.
The Board, with advice from the Committee, is satisfied that an effective
system of internal controls and risk management processes are in place
which enable the Company to identify, evaluate and manage key risks.
These processes have been in place since the start of the financial year
and up to the date of approval of the accounts. Further details of risk
management frameworks and specific material risks and uncertainties
facing the business can be found on pages 18 to 21.
Bribery Act 2010
The Bribery Act 2010 (the ‘Act’) came into force on 1 July 2011, and
repealed all previous statutory and common law provisions in relation to
bribery, instead replacing them with the crimes of bribery, being bribed,
the bribery of foreign public officials, and the failure of a commercial
organisation to prevent bribery on its behalf. However, a defence to any
such corporate failure offence is possible if it can be shown that
adequate procedures were in place at the time.
The Group is committed to conducting its business with the highest
degree of integrity. This commitment includes a zero tolerance approach
towards all forms of bribery, corruption, fraud and theft.
The Group has in place an appropriate policy and regularly re-enforces
its code of ethics. Appropriate Board approved procedures are in place
to prevent employees and other associated persons committing offences
under the Act. Engaging in fraud, bribery or corruption is unlawful and
any employee, director or officer found to have breached the code of
conduct will be liable to disciplinary action which may result in dismissal
or other serious sanctions. Breaches of the code of conduct by third
parties may result in immediate termination for breach of all contracts
with the Group. These procedures are subject to regular monitoring and
review.
Modern Slavery Act
We are committed to implementing and enforcing effective systems and
controls to ensure slavery and human trafficking is not taking place
anywhere in our supply chains or in any part of our business. To ensure a
high level of understanding of the risks of modern slavery and human
trafficking in our supply chains and our business, all Directors have been
briefed on the subject and we provide training to relevant members of
staff. Further details can be found on page 15.
Whistleblowing
The Group is committed to developing a culture of openness, honesty and
accountability and believes that it is fundamental that any concerns our
employees have about the Company can be raised without fear of
victimisation. To this end, the Group has in place a whistleblowing policy
which encourages employees to report any malpractice, illegalities,
wrongdoing or matters of similar concern (together ‘ethical wrongdoing’)
by other employees, former employees, contractors, suppliers or advisers.
Examples of ethical wrongdoing include bribery, corruption, fraud,
dishonesty and illegal practices which may endanger employees or other
parties. There have been no material instances of whistleblowing during
the year under review.
Bill Shannon
Chairman, Audit Committee
27 February 2018
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Annual Report and Accounts 2017 Johnson Service Group PLC 35
NOMINATION COMMITTEE REPORT
Objectives
The key objective of the Nomination Committee (the ‘Committee’) is to
monitor the performance, appropriateness and future succession of the
Company’s executive and Board talent in order to ensure that the Board
comprises individuals with the right blend of skills, knowledge and
experience to maintain a high degree of effectiveness in discharging its
responsibilities. Appointments to the Board are recommended, as
appropriate, by the Committee. Board appointments are subject to
approval by the Board as a whole.
The Committee met three times during 2017.
Composition
The members of the Committee comprise the Chairman of the Company
and the two Independent Non-Executive Directors. The Committee is
chaired by myself. Membership of the Committee is, therefore, in
compliance with provision B.2.1 of the Financial Reporting Council’s UK
Corporate Governance Code 2016. The Chief Executive Officer (‘CEO’)
is also invited to attend the meetings.
Roles and Responsibilities
The principal responsibilities of the Committee are:
➔ reviewing the structure, size and composition of the Board and its
committees;
➔ identifying and nominating candidates to fill Board vacancies;
➔ keeping up to date and fully aware of the strategic and commercial
changes affecting the Group and the markets in which it operates;
➔ keeping under review the leadership needs of the business with a
view to ensuring the continued ability to compete effectively in the
marketplace;
➔ assessing the roles of the existing directors in office to ensure that
there continues to be a balanced board in terms of skills, knowledge,
experience and diversity;
➔ considering the continuing service of a Director; and
➔ providing recommendations for reappointment of Directors retiring by
rotation.
The Committee undertakes its responsibilities proactively, recognising it
is important to plan Board succession well in advance, and to ensure that
the Company’s Board and executive leadership skills are fully aligned to
the Company’s long-term strategy. The Committee therefore takes care
to ensure that there is a continuous pipeline of high-performing and
executive talent beneath Board level.
What the Committee did in 2017
The main focus of the Committee’s work in 2017 included:
➔ identifying a suitable successor to the role of CEO – see below for
further details;
➔ reviewing the Committee’s terms of reference, and conducting the
annual review of the Committee’s performance;
➔ reviewing the independence of each Non-Executive Director,
including each Non-Executive Director’s actual, potential or perceived
conflicts of interest and concluding that each Non-Executive Director
was independent in character and judgement and that there were no
circumstances that were likely to affect their judgement; and
➔ recommending each Director for re-election at the forthcoming
Annual General Meeting.
CEO Succession
Succession planning at Board level has, and continues to be, a key area
of focus for Committee discussions and activities. In September 2017,
we announced a significant change in the Group’s Board. Chris Sander,
who has been an outstanding CEO for the past four years, announced
his intention to retire from the Group in 2018. It has been a huge
pleasure to work with Chris and, on behalf of the Board, I want to thank
him for his extraordinary contribution to the Group.
I am delighted that Chris will be succeeded by Peter Egan, currently
Managing Director of our Apparelmaster workwear business. Peter is a
key member of the Group’s senior management team, with over 25
years of experience in the textile services sector and having already
contributed significantly to the Group. Peter has the leadership skills
combined with the industry and operational experience to lead the Group
to continued future success having been instrumental in developing
Apparelmaster’s strategy and driving its growth, while also actively
contributing to the development and execution of the Group’s strategic
plan. He also benefits from the support of a very strong senior
management team and together they will continue to build on the
Group’s strong track record under the tenure of Chris Sander.
Peter will be appointed to the Board of Directors on 1 April 2018 as
Chief Operating Officer (‘COO’), ahead of assuming the role of CEO.
Chris remains flexible over the date of his retirement and has agreed to
remain with the Group until the end of 2018 to ensure a smooth and
effective transition to Peter.
Peter’s appointment was the result of a rigorous succession process. The
Board employs the services of executive search firms as part of the
external search process to identify potential Board and senior
management candidates. In preparation for the CEO succession, the
Committee considered the credentials of a number of providers before
recommending the appointment of the recruitment firm considered best
placed to meet the brief. The recruitment firm chosen, Korn Ferry, was
considered to be independent of, and had no other links with, the
Company or its Directors in connection with the brief.
The candidate assessment process included the development of a
success profile, an assessment of senior Group executives and a parallel
mapping of external candidates. The Committee, led by myself, managed
the assessment process. The initial key element of the process was to
build consensus and clarity on the major challenges and opportunities to
face the next CEO and to translate this into a profile of the ideal
candidate. Internal potential successors were assessed against this
profile which was also used as a yardstick against which to measure and
compare possible external nominees. The profile covered four important
elements of leadership: past experience, leadership competences,
personality traits and individual motivations and drivers. A detailed
success profile was then developed which was discussed and agreed by
the Committee.
Candidates, both internal and external, were then rigorously assessed
against the profile in order to determine their suitability, in particular,
exploring and understanding their past experiences and career, their
behavioural competences and their leadership potential. Following this, a
short list of three potential candidates was selected. Each candidate met
individually with each member of the Board, who explored specific
predetermined areas with them. Board members then provided written
feedback to myself on each of the candidates.
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36 Johnson Service Group PLC Annual Report and Accounts 2017
NOMINATION COMMITTEE REPORT CONTINUED
After detailed discussions and careful debate, the Committee concluded,
having taken all of the feedback into consideration that Peter, having
already contributed significantly to the Group, had the leadership skills
combined with the industry and operational experience to lead the Group
to continued future success and hence the Committee was able to make
a recommendation to the Board that he should succeed Chris as CEO.
Diversity
Whilst we pursue diversity, including gender diversity, we are not
committing to any specific targets. Instead, and when applicable, we will
seek to use executive search firms who have signed up to the voluntary
code of conduct setting out the seven key principles of best practice to
abide by throughout the recruitment process and we will continue to
follow a policy of appointing talented people at every level to deliver high
performance. We will also ensure that our development in this area is
consistent with our own strategic objectives and is enhancing in terms of
Board effectiveness.
Paul Moody
Chairman, Nomination Committee
27 February 2018
170435 Johnson Service Group Annual Report Pt2_170435 Johnson Service Group Annual Report Pt2 02/03/2018 20:41 Page 37
BOARD REPORT ON REMUNERATION
Prior to 13 December 2013, Premium Listed companies incorporated in the
UK were required to fully apply the Listing Rules of the Financial Conduct
Authority (the ‘Listing Rules’) with respect to the disclosure of directors’
remuneration. From 13 December 2013, whilst certain aspects of the Listing
Rules remain in force with respect to the disclosure of directors’
remuneration, most remuneration-related disclosures for Premium Listed
companies incorporated in the UK will only need to comply with the BIS
Directors’ Remuneration Reporting Regulations (the ‘Remuneration
Regulations’) when making disclosures regarding directors’ remuneration.
As an AIM listed company, the Company is not required to fully apply
either the Listing Rules or the Remuneration Regulations, and hence is
not required, and has not, presented a Board Report on Remuneration in
accordance with those rules. Nevertheless, the Board considers it
appropriate for the Company to provide Shareholders with information
with respect to Executive remuneration.
The information presented within this Board Report on Remuneration
has, therefore, been prepared on a consistent basis with that in prior
years.
Remuneration Committee
Throughout 2017, membership of the Remuneration Committee (the
‘Committee’) was comprised of the Chairman and the Independent Non-
Executive Directors and has been chaired by myself. None of the
members of the Committee have, or had, any personal financial interests
in the Company (other than as Shareholders), conflicts of interests
arising from cross-directorships or day to day involvement in running the
business.
The Committee is responsible for overseeing the policy regarding
Executive remuneration and for determining the remuneration packages
for the Executive Directors.
Periodically, the Committee engage PricewaterhouseCoopers LLP (PwC)
to provide guidance on standard market practice with regard to
Executive remuneration, including the provision of factual reward surveys,
based on a comparator group determined by the Remuneration
Committee, which is used for benchmarking purposes.
Remuneration Policy
The Committee reviews the Company’s remuneration philosophy and
structure each year to ensure that the remuneration framework remains
effective in supporting the Company’s business objectives, in line with
best practice, and fairly rewards individuals for the contribution that they
make to the business, having regard to the size and complexity of the
Group’s operations and the need to retain, motivate and attract
employees of the highest calibre.
The Committee intends that base salary and total remuneration of
Executive Directors should be in line with the market. Remuneration is
periodically benchmarked against rewards available for equivalent roles
in a suitable comparator group with the aim of paying neither
significantly above nor below the median for each element of
remuneration. The Committee also considers general pay and
employment conditions of all employees within the Group and is
sensitive to these, to prevailing market conditions, and to governance
trends when assessing the level of salaries and remuneration packages
of Executive Directors.
The total remuneration package links corporate and individual
performance with an appropriate balance between short and long term
elements, and fixed and variable components. The policy is designed to
incentivise executives to meet the Company’s strategic objectives, such
that a significant portion of total remuneration is performance related,
Annual Report and Accounts 2017 Johnson Service Group PLC 37
based on a mixture of internal targets linked to the Company’s strategic
business drivers (which can be easily measured, understood and
accepted by both executives and Shareholders) and appropriate external
comparator groups.
The Committee considers that the targets set for the different elements
of performance related remuneration are both appropriate and
demanding in the context of the business environment and the
challenges with which the Group is faced.
As an AIM listed company, the Company is not required to obtain
Shareholder approval prior to the adoption of new employee share
schemes, however, the Company has voluntarily elected to:
➔ propose the adoption of new or amended employee share schemes
at the relevant AGM;
➔ consult in advance with, and seek feedback from, major Shareholders
before proposing the adoption of any new employee share schemes
that materially differ in design to existing schemes; and
➔ provide an early indication to major Shareholders where, with respect
to existing schemes, it is proposing replacement schemes which
reflect current or emerging best practice and where the terms of the
new schemes are essentially the same as those of the schemes they
will replace.
Full details of all current schemes are included within this report.
Malus and Clawback
To reflect emergent best practice, and to align with Shareholder interests,
the Committee introduced malus and clawback provisions in relation to
all annual bonus and LTIP schemes (together ’Awards’) granted on or
after 1 January 2015.
The provisions enable the Committee to decide, up until the second
anniversary of an Award becoming payable, in circumstances in which
the Committee considers it appropriate, to reduce the quantum of an
Award, cancel an Award or impose further conditions on an Award. The
provisions also enable the Committee to decide, up until the second
anniversary of an Award becoming payable that, in the relevant
circumstances, the participant must repay to the Company (or any
person nominated by the Company) some or all of the cash or shares
received under an Award.
The circumstances in which the Committee may apply the ‘malus’ and
‘clawback’ provisions include, but are not limited to, a material
misstatement of the Company’s audited financial results, a miscalculation
of the extent to which a performance target, applying to any Award
granted on or after 1 January 2015, has been met, a material failure of
risk management by the Company and serious reputational damage to
the Company.
Personal Shareholding Requirement and Holding Periods
In order that their interests are linked with those of Shareholders,
Executive Directors are, over a reasonable period of time, expected to
build up and maintain a personal shareholding in the Company, equal to
at least the value of base salary. Non-Executive Directors are
encouraged, but are not required, to hold a personal shareholding in the
Company.
The Committee has considered whether Executive Directors should be
required to hold any shares for a further period after vesting or exercise
of an LTIP award, subject to the need to finance any costs of acquisition
and associated tax liabilities. It was previously determined, that a further
restriction over the personal shareholding requirement was unnecessary
however, in order to take account of developments in best practice, the
rules of the 2018 Long-Term Incentive Plan (the ‘New LTIP’) contain
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38 Johnson Service Group PLC Annual Report and Accounts 2017
BOARD REPORT ON REMUNERATION CONTINUED
provisions which allow the Committee to require that shares acquired
from vesting LTIP awards must be retained for a prescribed period post
vesting. The Committee’s intention, subject to Shareholder approval of
the New LTIP, is that the first grant of awards under the New LTIP, which
are expected to be made in or around March 2019, will be subject to
such a holding period.
Components of Executive Remuneration
The current remuneration of Executive Directors comprises the following
five components:
➔ basic salary;
➔ annual bonus;
➔ taxable benefits;
➔ share options (including the Long-Term Incentive Plan (Approved and
Unapproved sections) and the Sharesave Plan); and
➔ pension arrangements (only basic salary is pensionable).
Details of how the various components of remuneration are delivered are
set out below.
Basic Salary
Basic salary represents a value which reflects the Remuneration
Committee’s assessment of the market rate for relevant positions and
the individual Director’s experience and value to the business. Annual
reviews are considered against published information for similar sized
groups and the level of increases awarded to staff throughout the Group.
Annual Bonus
In order to incentivise and reward the achievement of stretching one year
performance targets, the Group operates a Short Term Incentive
Programme (STIP) which provides for a performance related bonus
based on the Group’s financial results. All payouts are in cash and are
subject to malus and clawback provisions.
The individual targets for the Executive Directors are established by the
Committee prior to the start of each financial year with a view to
maximising Shareholder value and meeting other Group objectives.
Subject to the achievement of the targets, the maximum amount of basic
salary which any annual performance related bonus can represent is as
follows:
Chief Executive Officer Chief Financial Officer
Awards made prior to 1 January 2017
Awards made on or after 1 January 2017
100%
125%
100%
110%
Annual targets are set with reference to internal budgets, which have
been robustly challenged by the Non-Executive Directors, with maximum
payout requiring performance significantly ahead of budget. The
minimum performance target threshold in 2017 was linked to the
Group’s Adjusted Profit Before Taxation measure; no bonus is payable
for below threshold performance. Maximum payout requires the
achievement of 130% of the minimum performance target threshold.
The Committee reviews, on an annual basis, the performance criteria for
each Executive Director to ensure that they remain appropriate and
retains the discretion to adjust the performance criteria during the year
to ensure that they continue to reflect underlying business performance,
for example, following an acquisition. By way of example, the 2017
performance target, set in December 2016, was increased during the
year by the Committee to reflect the acquisition of PLS in July 2017 and
StarCounty in December 2017.
The Chairman and the Independent Non-Executive Directors are not
eligible to participate in the STIP.
Taxable Benefits
Taxable benefits, which are not performance related, principally include
the provision of a car or car allowance and private medical insurance.
Share Options
2009 Long-Term Incentive Plan (the ‘LTIP’)
To incentivise certain employees to maximise Shareholder value and to
ensure the employees’ services are retained, the Company has adopted
the LTIP, which was approved by a resolution of the Board on 7 May
2009. All employees (including Executive Directors) of the Group are
eligible to participate in the LTIP, although in practice, participants will be
limited to Executive Directors and Senior Management. Participants in
the LTIP will be selected by the Remuneration Committee.
Eligible participants will be granted awards entitling them to receive
Ordinary shares in the Company after a specified vesting period and
subject to the achievement of specified performance conditions. Vesting
of awards granted under the LTIP will normally occur after a three year
performance period.
Performance Conditions
The performance conditions attached to the awards are linked to the
Company’s Total Shareholder Return and Earnings per Share
performance:
➔ 50 per cent of an award will vest by reference to the annualised
growth in the Company’s net return index (‘TSR’) over the
performance period relative to the annualised growth in the FTSE
AIM All-Share Industrial Goods and Services net return index (the
‘Index’) over the performance period. None of the award will vest if
the TSR growth is less than the Index growth. One quarter of the
award will vest if the TSR growth is equal to the Index growth. The
whole of the award will vest if the TSR growth is at least seven per
cent above the Index growth. Vesting of the award will be on a
straight line basis between these points.
➔ The remaining 50 per cent of the award will vest by reference to the
annualised growth in the Company’s adjusted fully diluted earnings
per share from continuing operations (‘EPS’) over the performance
period relative to the annualised growth in the retail price index (‘RPI’)
over the performance period. None of the remaining award will vest if
the EPS growth is less than three per cent above the RPI growth.
One quarter of the remaining award will vest if the EPS growth is
three per cent above the RPI growth. The whole of the remaining
award will vest if the EPS growth is at least eight per cent above the
RPI growth. Vesting of the remaining award will be on a straight line
basis if EPS growth is between three per cent and eight per cent
above the RPI growth.
For the purpose of calculating TSR and Index growth, the average of the
net return index over the dealing days falling in the period of one month
ending on the last day of the performance period will be compared to the
average of the net return index over the dealing days falling in the period
of one month immediately preceding the first day of the performance
period, in each respect of the Company and for the FTSE AIM All-Share
Industrial Goods and Services index.
For the purpose of calculating EPS growth, the Company’s adjusted fully
diluted earnings per share from continuing operations for the final
financial year in the performance period will be compared to the
Company’s adjusted fully diluted earnings per share from continuing
operations for the financial year immediately before the start of the
performance period.
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Annual Report and Accounts 2017 Johnson Service Group PLC 39
For the purpose of calculating RPI growth, the retail prices index value
for the last month of the final financial year in the performance period
will be compared to the retail prices index value for the last month of the
financial year immediately before the start of the performance period.
The above performance conditions, used for each of the 2014 Award,
2015 Award, 2016 Award and 2017 Award were selected to incentivise
award holders to maximise Shareholder value. The charts below
demonstrate the effect on vesting of the above performance conditions:
+0%
+7%
Relative Annualised TSR Growth
100%
25%
100%
25%
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2014 Award
Awards were granted to Executive Directors and certain Senior
Management on 13 March 2014 with an exercise price of £nil. The
performance period was the three financial years starting 1 January
2014 and ending 31 December 2016. The performance conditions,
calculated as set out above, were both met in full. The awards were
exercised during 2017.
2015 Award
Awards were granted to Executive Directors and certain Senior
Management on 8 May 2015 with an exercise price of £nil. The
performance period was the three financial years starting 1 January
2015 and ending 31 December 2017, however, the awards cannot vest
before the third anniversary of the grant date.
The performance conditions, calculated as set out above, were both met
in full. In accordance with the rules of the LTIP the award will vest on
8 May 2018, being the third anniversary of the 2015 Award grant date.
Award recipients will then be eligible, subject to the rules of the LTIP, to
exercise their Award up to and including 8 May 2025.
2016 Award
Awards were granted to Executive Directors and certain Senior
Management on 6 May 2016 with an exercise price of £nil. The
performance period is the three financial years starting 1 January 2016
and ending 31 December 2018. The performance conditions are as set
out above.
2017 Award
Awards were granted to Executive Directors and certain Senior
Management on 27 March 2017 with an exercise price of £nil. The
performance period is the three financial years starting 1 January 2017
and ending 31 December 2019. The performance conditions are as set
out above.
2009 Long-Term Incentive Plan Approved Section (the ‘Approved LTIP’)
The Approved LTIP was approved by a resolution of the Board on 7 May
2009, and received approval from HM Revenue & Customs on 25 June
2009. The Approved LTIP is linked to the LTIP award referred to above.
The linked awards give the holder the same potential gross gain as if
they had just received the LTIP award, however, as the Approved LTIP is
tax favoured, in certain circumstances all or part of any gain on the LTIP
award will be received through the Approved LTIP and therefore taxed at
a lower rate, or even zero.
The actual number of shares the award holder will receive when
exercising options will depend on the date of exercise, whether the
performance conditions of the LTIP are achieved and the extent to which
they are achieved, and also on how much of the gain (if any) can be
delivered through the Approved LTIP. Part of the total award will be
forfeited once the gain is determined, however, this will still leave the
holder with the same gross gain that would have been received had only
an award been made under the LTIP arrangement.
On 8 May 2015, the Executive Directors and certain Senior
Management were granted awards under the Approved LTIP, linked to
the awards granted on the same date under the LTIP, at an exercise
price of 80 pence. The award will vest on 8 May 2018, being the third
anniversary of the linked 2015 Award grant date. Award recipients will
then be eligible, subject to the rules of the LTIP, to exercise their Award
up to and including 8 May 2025.
2018 Long-Term Incentive Plan (the ‘New LTIP’)
Awards may only be granted under the 2009 LTIP until 4 July 2018. The
Committee, therefore, intends to adopt a new plan on substantially the
same terms as the 2009 LTIP in order for the Company to be able to
continue to operate its executive and senior management incentive
arrangements after this date.
As with the 2009 LTIP, the New LTIP comprises an “unapproved”
section, under which nil cost awards are made, and a Company Share
Option Plan (‘CSOP’) section under which UK tax-advantaged market
value options are awarded and which are linked to the nil cost awards
such that the total value delivered under both awards is never more than
would be delivered under the nil cost awards alone. The use of the
CSOP section allows the potential for tax favoured treatment for
participants in the New LTIP.
In addition to updating the CSOP section to take account of changes in
tax law since the 2009 LTIP was introduced, malus and clawback
provisions have been added to the rules of the New LTIP, to reflect the
fact that such provisions have been applicable to LTIP awards granted by
the Company from 2015. In addition, to take into account potential future
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BOARD REPORT ON REMUNERATION CONTINUED
developments in best practice, the rules of the New LTIP contain
provisions which allow the Committee to require that shares acquired
from vesting LTIP awards must be retained for a prescribed period post
vesting. The Committee’s intention is that the first grant of awards under
the New LTIP, which are expected to be made in or around March 2019,
will be subject to such a holding period.
The Company intends to grant awards for the last time under the 2009
LTIP in or around March 2018. The 2009 LTIP will then continue in force
in relation to LTIP awards which have previously been granted under that
plan and which remain outstanding.
A resolution proposing the establishment of the New LTIP, together with
a summary of the principle features of the rules of the New LTIP, is
included within the 2018 Notice of Annual General Meeting.
Sharesave Plan (the ‘SAYE Scheme’)
The SAYE Scheme is open to all employees, including Executive
Directors, who have completed two years’ service at the date of invitation
and who open an approved savings contract.
When the savings contract is started, options are granted to acquire the
number of shares that the total savings will buy when the savings
contract matures. Details of the exercise periods and normal expiry dates
are given in note 26 of the consolidated financial statements.
Fixed and Variable Remuneration
As stated above, the Company’s policy is to provide a total remuneration
package that links corporate and individual performance with an
appropriate balance between short and long term elements, and fixed
and variable components.
By way of illustration, the balance between the fixed and variable
elements for the Executive Directors who were in office at 31 December
2017 is shown in the charts below for varying levels of vesting of the
2009 Long-Term Incentive Plan (LTIP), granted in 2015, 2016 and
2017, each of which were unvested at 31 December 2017, together with
actual bonus and the maximum achievable bonus. Broadly, and assuming
actual bonus achievement in 2017, there is a 54:46 split between fixed
and variable pay if none of the LTIP were to vest and a 27:73 split
between fixed and variable pay assuming maximum bonus achievement
and maximum performance of the LTIP, showing the high proportion of
performance-related pay that is ‘at risk’ in the total remuneration
package.
The above illustration of the current Executive Directors’ aggregate
percentage of fixed and variable remuneration is based on a number of
assumptions:
➔ fixed remuneration includes basic salary only and represents actual
annual salary for 2017;
➔ variable remuneration includes annual bonus (assumed at either
actual achievement for 2017 or maximum achievement where
indicated within this illustration) and, where indicated within this
illustration, a hypothetical annualised gain in respect of the LTIP; and
➔ the amount included in respect of the LTIP represents a hypothetical
annualised gross gain over the three year performance period for
each of the unvested schemes, at an assumed vesting of 50% and
then at 100% and assuming a share price at the date of exercise of
144 pence, this being the share price of the Company at
31 December 2017.
Fixed
54%
Variable
46%
No LTIP Vesting
& Actual Bonus
Fixed
38%
Variable
62%
50% LTIP Vesting
& Actual Bonus
Fixed
27%
Variable
73%
100% LTIP Vesting
& Maximum Bonus
Variable
Fixed
Non-Executive Directors
The Chairman and Non-Executive Directors receive fees which are set
by the Board and which are commensurate with their experience and
contribution to the Group. The Chairman and Non-Executive Directors do
not participate in decisions regarding their own remuneration. They do
not participate in any of the Group’s pension, share option or
performance related bonus schemes.
Service Contracts
In the event of termination, without cause, the Company has a
contractual obligation to compensate the Director for the unexpired
period of his or her notice. The Company will seek to reduce this
payment by means of the Director’s duty to mitigate this payment
wherever possible.
170435 Johnson Service Group Annual Report Pt2_170435 Johnson Service Group Annual Report Pt2 02/03/2018 20:41 Page 41
Annual Report and Accounts 2017 Johnson Service Group PLC 41
Executive Directors
Chris Sander is employed under a service agreement dated 6 July 2004, as amended by a Variation Letter dated 20 October 2009 and as further
amended on the appointment to Chief Executive Officer on 3 January 2014, which has no fixed expiry date and provides that the Company is
required to give twelve months’ notice and Chris Sander is required to give six months’ notice.
Yvonne Monaghan is employed under a service agreement dated 14 January 2004, as amended with the appointment to Chief Financial Officer on
31 August 2007, which has no fixed expiry date and provides that the Company is required to give twelve months’ notice and Yvonne Monaghan is
required to give six months’ notice.
Chairman and Non-Executive Directors
The Chairman and Non-Executive Directors each have fixed term appointments. Each has a letter of appointment, dated as set out below, which
requires the Company to provide three months’ notice, the Chairman to provide at least three months’ notice and each Non-Executive Director to
provide at least one months’ notice.
At 31 December 2017, the unexpired terms of the Chairman and Independent Non-Executive Directors letters of appointment were:
Paul Moody
Bill Shannon1
Nick Gregg
Date of Latest Letter
of Appointment
Service Agreement
Start Date
Service Agreement
End Date
Unexpired Term at
31 December 2017
24 February 2017
24 February 2017
23 December 2015
1 May 2017
8 May 2017
1 January 2016
30 April 2020
7 May 2018
31 December 2018
2 years 4 months
4 months
1 year
Note 1: On 26 January 2018, a new letter of appointment was issued which extended the unexpired term above by 12 months.
Performance Graph
Over the five years to 31 December 2017 the Company has outperformed the FTSE AIM Industrial Goods and Services Index, the FTSE Support
Services Index and the FTSE AIM All-Share Index with a net total shareholder return of 451% against a net total shareholder return of 247%, 175%
and 158% respectively.
Over the two years to 31 December 2017 the Company has outperformed the FTSE AIM Industrial Goods and Services Index, the FTSE Support
Services Index and the FTSE AIM All-Share Index with a net total shareholder return of 171% against a net total shareholder return of 148%, 124%
and 146% respectively.
These indices have been selected for this comparison as, in the opinion of the Directors, they represent the general and specific sectors in which the
Group operates.
TSR 5 Year Performance
TSR 2 Year Performance
550
500
450
400
350
300
250
200
150
100
50
0
Dec-12
Dec-13
Dec-14
Dec-15
Dec-16
Dec-17
200
150
100
50
0
Dec-15
Dec-16
Dec-17
JSG
FTSE AIM All-Share
FTSE Support Services
FTSE AIM Industrial Goods & Services
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170435 Johnson Service Group Annual Report Pt2_170435 Johnson Service Group Annual Report Pt2 02/03/2018 20:41 Page 42
42 Johnson Service Group PLC Annual Report and Accounts 2017
BOARD REPORT ON REMUNERATION CONTINUED
Directors’ Remuneration (Audited)
Executive Directors
Chris Sander
Yvonne Monaghan
Non-Executive Directors
Paul Moody
Bill Shannon
Nick Gregg
Former Directors
Michael Del Mar
Note
1,2
1,2,3
4
5
6
Basic
Salary/Fees
2017
£000
395
270
105
45
40
–
855
Annual
Bonus
2017
£000
357
215
–
–
–
–
Cash in
Lieu of
Pension
2017
£000
70
48
–
–
–
–
572
118
Taxable
Benefits
2017
£000
19
27
–
–
–
–
46
Total
2017
£000
841
560
105
45
40
Total
2016
£000
700
551
105
43
38
–
1,591
14
1,451
Note 1: Details of the amounts included in the table above for Chris Sander and Yvonne Monaghan under ‘Cash in Lieu of Pension’ are set out below.
Note 2: During the year, Chris Sander and Yvonne Monaghan each exercised options under the Company's Sharesave Plan and the 2009 Long Term
Incentive Plan. Further details are disclosed on page 43.
Note 3: As set out within the Director biographies on page 22, Yvonne Monaghan is also a Non-Executive Director of NWF Group plc. She received, and
retained, fees of £39,000 and £38,000 in 2017 and 2016 respectively for her services.
Note 4: Following the retirement of Michael Del Mar on 5 May 2016, Bill Shannon assumed the role of Senior Independent Non-Executive Director. The figure
included in the table above for 2016 reflects the increased amount paid in respect of his additional responsibility for that period; the figure included in
the table above for 2017 reflects the increased amount paid in respect of his additional responsibility for the full year.
Note 5: Following the retirement of Michael Del Mar on 5 May 2016, Nick Gregg assumed the role of Chairman of the Remuneration Committee. The figure
included in the table above for 2016 reflects the increased amount paid in respect of his additional responsibility for that period; the figure included in
the table above for 2017 reflects the increased amount paid in respect of his additional responsibility for the full year.
Note 6: Michael Del Mar retired as Senior Independent Non-Executive Director on 5 May 2016. The figure included in the table above for 2016 reflects the
amount paid up until the date of retirement.
No Director waived any emoluments in respect of the years ended 31 December 2017 and 31 December 2016.
Pension Benefits of Executive Directors
Executive Directors are entitled to receive retirement benefits, which are calculated on basic salary, under one or more of the Group’s contributory
defined benefit or defined contribution schemes. Details of the schemes are given in note 23 of the Consolidated Financial Statements.
Each Executive Director, who served during the current year has left active pensionable service and is entitled to a preserved benefit under the
Johnson Group Defined Benefit Scheme (the ‘JGDBS’), which is of the defined benefit type. The accrued pension entitlement shown is the amount
that would be paid annually on retirement (at normal retirement age). This pension is calculated based on the total period of pensionable service to
the Company, both before and after becoming a Director.
Chris Sander
Yvonne Monaghan
Accrued pension
entitlement at
December 2017
£000
59
49
Accrued pension
entitlement at
December 2016
£000
58
48
From 1 April 2011, Chris Sander opted to become a deferred member of the JGDBS and receive a monthly cash amount equal to 16.0% of his
monthly salary. From 1 January 2014, the monthly cash amount increased to 17.8% of his monthly salary.
From 1 January 2012, Yvonne Monaghan opted to become a deferred member of the JGDBS and receive a monthly cash amount equal to 17.8% of
her monthly salary.
The amounts payable in the year to Chris Sander and Yvonne Monaghan under the above arrangements were £70,310 and £48,060 respectively
(2016: £58,918 and £44,945 respectively).
Both Executive Directors took a partial transfer of benefits on 31 March 2012.
170435 Johnson Service Group Annual Report Pt2_170435 Johnson Service Group Annual Report Pt2 02/03/2018 20:41 Page 43
Annual Report and Accounts 2017 Johnson Service Group PLC 43
Interests in Share Capital
The interests of the Directors who were in office at 31 December 2017, together with the interests of their close family, in the shares of the Company
at the commencement, or date of appointment if later, and close of the financial year, were as follows:
Beneficial
Paul Moody
Chris Sander
Yvonne Monaghan
Bill Shannon
Nick Gregg
Issued share capital*
Directors’ share holding
Non Beneficial
Yvonne Monaghan and others
31 December 2017
Ordinary shares of 10p each
31 December 2016
Ordinary shares of 10p each
100,000
525,930
564,086
125,000
15,000
1,330,016
366,499,375
0.4%
100,000
525,930
564,086
125,000
–
1,315,016
365,108,019
0.4%
588,452
588,452
* Issued share capital is as at the balance sheet date
The Non Beneficial shares referred to above are held by the Johnson Brothers Employee Benefit Trust (the “Trust”). The Trust is governed by a Trust
deed dated 18 August 1936 and was set up for the benefit of employees or ex-employees of the Company or their respective widows, widowers,
children or other dependants. Yvonne Monaghan is a Trustee of the Trust.
There have been no changes in the Directors’ interests in the shares of the Company during the period 31 December 2017 up until the time of
signing this report.
Beneficial Interests in Share Options (Audited)
The interests of the Directors, who have served during the year, in share options of the Company at the commencement and close of the financial
year (or date of resignation if earlier) were as follows:
At 31
December
2016
Options
Granted
During Year
Options
Lapsed
During Year
Options
Cancelled
During Year
Options
Exercised
During Year
Chris Sander
Scheme 3
Scheme 1
Scheme 1
Scheme 2
Scheme 1
Scheme 1
Yvonne Monaghan
Scheme 3
Scheme 1
Scheme 1
Scheme 2
Scheme 1
Scheme 1
Scheme 3
Date of Grant
1 October 2013
13 March 2014
8 May 2015
8 May 2015
6 May 2016
27 March 2017
1 October 2013
13 March 2014
8 May 2015
8 May 2015
6 May 2016
27 March 2017
4 October 2017
17,526
461,855
393,750
37,500
359,782
–
1,270,413
17,526
387,628
308,750
37,500
274,456
–
–
1,025,860
–
–
–
–
–
456,120
456,120
–
–
–
–
–
274,364
7,157
281,521
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
At 31
December
2017
–
–
393,750
37,500
359,782
456,120
(17,526)
(461,855)
–
–
–
–
(479,381)
1,247,152
(17,526)
(387,628)
–
–
–
–
–
–
–
308,750
37,500
274,456
274,364
7,157
(405,154)
902,227
Option
Price
43.75p
nil
nil
80.00p
nil
nil
43.75p
nil
nil
80.00p
nil
nil
125.75p
Scheme 1 – 2009 Long-Term Incentive Plan (the ‘2009 LTIP’)
Scheme 2 – 2009 Long-Term Incentive Plan Approved Section (the ‘2009 Approved LTIP’)
Scheme 3 – Sharesave Plan (‘SAYE Scheme’)
Details of the 2009 LTIP, the 2009 Approved LTIP and the SAYE Scheme are given on pages 38 to 40 of the Board Report on Remuneration.
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170435 Johnson Service Group Annual Report Pt2_170435 Johnson Service Group Annual Report Pt2 02/03/2018 20:41 Page 44
44 Johnson Service Group PLC Annual Report and Accounts 2017
BOARD REPORT ON REMUNERATION CONTINUED
Director Gains
On 6 March 2017, Chris Sander and Yvonne Monaghan each exercised
options under the Company's Sharesave Plan over 17,526 ordinary
shares of 10 pence each ("Ordinary Shares") with an option price of
43.75 pence per share and each subsequently sold 17,526 Ordinary
Shares at a price of 115.45 pence per share.
On 27 March 2017, Chris Sander exercised nil cost options under the
Company’s 2009 Long Term Incentive Plan over 461,855 Ordinary
Shares and subsequently sold 461,855 Ordinary Shares at a price of
109.93 pence per share. On the same date, Yvonne Monaghan
exercised nil cost options under the Company's 2009 Long Term
Incentive Plan over 387,628 Ordinary Shares and subsequently sold
387,628 Ordinary Shares at a price of 109.93 pence per share.
No Director exercised options over shares in the Company during 2016.
Other Details
The mid-market price of the Ordinary shares of 10p each on 31
December 2017 and 31 December 2016 was 144.00 pence and
114.75 pence respectively. During the year, the mid-market price of the
Ordinary shares of 10p each ranged between 106.00 pence and 151.00
pence (2016: 85.00 pence and 114.75 pence).
None of the terms or conditions of the share options were varied during
the year.
There have been no changes in the Directors’ interests during the period
31 December 2017 to 27 February 2018, this being the date of this
report.
Annual General Meeting
A resolution will be proposed at the Annual General Meeting to seek
approval of the Board Report on Remuneration.
Nick Gregg
Chairman, Remuneration Committee
27 February 2018
170435 Johnson Service Group Annual Report Pt3_170435 Johnson Service Group Annual Report Pt3 02/03/2018 20:47 Page 45
Annual Report and Accounts 2017 Johnson Service Group PLC 45
INDEPENDENT AUDITORS’ REPORT TO THE
MEMBERS OF JOHNSON SERVICE GROUP PLC
Report on the audit of the group financial statements
Opinion
In our opinion, Johnson Service Group PLC’s group financial statements (the “financial statements”):
➔ give a true and fair view of the state of the group’s affairs as at 31 December 2017 and of its profit and cash flows for the year then ended;
➔ have been properly prepared in accordance with IFRSs as adopted by the European Union; and
➔ have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements, included within the Annual Report and Accounts (the “Annual Report”), which comprise: the Consolidated
Balance Sheet as at 31 December 2017; the Consolidated Income Statement, the Consolidated Statement of Comprehensive Income, the
Consolidated Statement of Cash Flows and the Consolidated Statement of Changes in Shareholders' Equity for the year then ended; the Statement
of Significant Accounting Policies; and the Notes to the Consolidated Financial Statements.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities under ISAs
(UK) are further described in the Auditors’ responsibilities for the audit of the financial statements section of our report. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We remained independent of the group in accordance with the ethical requirements that are relevant to our audit of the financial statements in the
UK, which includes the FRC’s Ethical Standard, as applicable to listed entities, and we have fulfilled our other ethical responsibilities in accordance
with these requirements.
Our audit approach
Overview
Materiality
Audit scope
➔ Overall group materiality: £2.2 million (2016: £1.9 million), based on 5% of adjusted operating profit.
➔ We focused our work over the Group’s reporting packs for the key operating divisions; Apparelmaster, Stalbridge, London
Linen, Bourne and Afonwen.
➔ We performed procedures over two Group companies, including Johnson Service Group PLC (the parent company of the
Group), and the consolidation adjustments.
➔ The components where we performed our audit work, together with procedures over the consolidation adjustments,
accounted for 99% of Group revenue and 99% of Adjusted Operating Profit from continuing operations.
Key audit
matters
➔ Accounting for complex customer arrangements.
➔ Goodwill impairment assessment.
➔ Accounting for the acquisition of Clayfull Limited and StarCounty Textile Services Limited.
The scope of our audit
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements. In particular, we
looked at where the directors made subjective judgements, for example in respect of significant accounting estimates that involved making
assumptions and considering future events that are inherently uncertain.
As in all of our audits we also addressed the risk of management override of internal controls, including evaluating whether there was evidence of
bias by the directors that represented a risk of material misstatement due to fraud.
Key audit matters
Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of the financial statements of
the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by the auditors,
including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the
engagement team. These matters, and any comments we make on the results of our procedures thereon, were addressed in the context of our audit
of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. This is not a
complete list of all risks identified by our audit.
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46 Johnson Service Group PLC Annual Report and Accounts 2017
INDEPENDENT AUDITORS’ REPORT TO THE
MEMBERS OF JOHNSON SERVICE GROUP PLC CONTINUED
Key audit matter
Accounting for complex customer arrangements
Refer to page 32 of the Audit Committee Report and page 58 of the
Statement of Significant Accounting Policies.
The Group, through the trading divisions, give rebates to certain key
customers. These are contractual and vary by customer, but largely relate
to volume based rebates on sales made throughout the financial year,
with the value being determined by the level of spend.
We focused on this area because the amount of customer rebates
payable in respect of the year is determined by the contract terms for
each customer, which are negotiated separately and, as a result, differ
from one another. This means that the calculation of the rebates
recognised in the Income Statement, and as a payable at the year end,
relies on a manual process, which is inherently more prone to error than
systems-based processes. We also focused on the completeness of the
Income Statement charge and year end provision due to the risk of
potential omission given the manual nature of the process.
Goodwill impairment assessment
Refer to page 59 of the Statement of Significant Accounting Policies
and note 12 of the Consolidated Financial Statements.
The goodwill balance of £120.3 million relates to a number of trading
businesses and is required to be tested annually for impairment. No
impairment charge has been recognised against these balances in the
current financial year. The risk we focused on is that goodwill balances
may be overstated and that an impairment charge may be required.
The carrying value of goodwill is considered a significant risk, and with
the completion of several acquisitions in recent years, an extra focus on
goodwill is required to ensure these are valued appropriately. The large
magnitude of the balance, and the numerous assumptions made, add to
the judgemental nature of the balance.
How our audit addressed the key audit matter
To test customer rebates, we:
➔ recalculated, for a sample of customers, the customer rebate expense
recognised within the Income Statement in the year, and provided for
at the Balance Sheet date, finding them to be broadly consistent with
the related contract;
➔ compared sales recorded in the year, and the contractual rebate
arrangements agreed with each customer, to the Directors’
calculation of the rebate expense, finding it to not be materially
different;
➔ compared the provision made at the prior year end to the amounts
paid in 2017 in respect of those provisions, with no material
differences identified;
➔ tested whether any rebate arrangements had been omitted from the
amounts charged in the year, and liabilities held at the Balance Sheet
date, by checking the contractual arrangements with the Group’s
most significant customers to make sure that all rebate arrangements
had been identified by the Directors’ and did not identify any that had
been omitted; and
➔ agreed amounts paid to customers post period end to source
documentation to check they had been accounted for in the right
accounting period, and found no instances of amounts recorded in
the wrong period.
To assess the impairment assessment performed by the Directors we
have performed the following:
➔ We evaluated and assessed the reasonableness of the Group’s future
cash flow forecasts, and the process by which they were prepared,
including comparing them to the latest Board approved budgets, and
testing the underlying calculations;
➔ assessed the reasonableness of the Board approved budget,
including assessing the revenue and costs included in those budgets
based on our understanding of the Group. We found the assumptions
underpinning the budgets to be consistent with our understanding;
➔ tested the Directors’ historical budgeting accuracy by evaluating
whether previous budgets had been achieved and found that actual
performance has exceeded the budgeted figures for both revenue
and operating profit;
➔ tested the Directors’ key assumptions for long-term growth rates
outside the budget period, by comparing them to, and finding them
broadly in line with, forecast inflation rates in the UK; and
➔ considered the discount rate by agreeing the inputs into the
calculation, including the cost of debt, equity risk premium and the
beta factor.
We performed our own sensitivities over the key drivers of the cash flow
forecasts, being revenue and margin growth, and the discount rate used.
Our discount rate sensitivity testing included developing an independent
expectation of an appropriate discount rate with reference to data from
other companies in the Group’s industry and sectors and assessing the
impact applying this rate would have on the recoverable amounts
determined.
Having ascertained the extent of change in those assumptions that
either individually, or collectively, would be required for the goodwill to be
impaired, we considered whether such a movement in those key
assumptions arising was reasonably likely, and concluded that no
reasonably likely change would result in the goodwill being impaired.
170435 Johnson Service Group Annual Report Pt3_170435 Johnson Service Group Annual Report Pt3 02/03/2018 20:47 Page 47
Annual Report and Accounts 2017 Johnson Service Group PLC 47
Key audit matter
Accounting for acquisition of Clayfull Limited and StarCounty Textile Services Limited
Refer to page 32 of the Audit Committee Report, page 57 of the
Statement of Significant Accounting Policies and note 31 of the
Consolidated Financial Statements.
How our audit addressed the key audit matter
We obtained and read the relevant terms of the purchase agreements to
inform our further audit procedures to test the accounting for the
acquisitions.
On 28 July 2017 the Group acquired 100% of the share capital of
Clayfull Limited for net consideration of £7.5 million, and on
11 December 2017 the Group acquired 100% of the share capital of
StarCounty Textile Services Limited for net consideration of £2.0 million.
We tested the recognition in the Consolidated Financial Statements of
the fair value of the assets and liabilities acquired (and residual goodwill).
In doing so, we:
➔ agreed consideration paid through to bank statement, noting no
We focused on these areas because the accounting for acquisitions
involved judgement and estimates that have a material impact on the
amounts recognised in the Group Financial Statements, including:
➔ determining the fair value of intangible assets acquired, including
customer lists and contracts, which the Directors valued at £2.6
million (Clayfull) and £1.2 million (StarCounty), and the useful
economic lives of those customer lists and contracts, which were
assessed as six years for Clayfull and five years for StarCounty; and
➔ determining the provisional fair value of other assets and liabilities
acquired.
errors;
➔ tested the Directors’ valuation of the acquired customer lists by
testing if the assumptions used in the calculations were consistent
with our understanding of the acquisitions and through agreement to
supporting evidence. In addition, we compared the assumption to
previous acquisitions made by the Group in this industry, including
estimated customer renewal rates, attrition rates and the discount
rate applied. We found no significant inconsistencies in the
assumptions determined by the Directors;
➔ considered whether any other intangible assets should have been
identified by the Directors, based on our understanding of the
transactions, our knowledge of the businesses, the purchase
agreements and discussions with the Directors; we did not identify
any; and
➔ tested whether other assets and liabilities acquired had been
recognised at fair value, with no material differences identified.
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a whole,
taking into account the structure of the Group, the accounting processes and controls, and the industry in which it operates.
Materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together with
qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the individual
financial statement line items and disclosures and in evaluating the effect of misstatements, both individually and in aggregate on the financial
statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Overall group materiality
£2.2 million (2016: £1.9 million).
How we determined it
5% of adjusted operating profit.
Rationale for benchmark applied
Adjusted operating profit from continuing operations is the key measure used both internally by the Board and,
we believe, through reading Directors’ presentations to analysts, externally by shareholders in evaluating the
performance of the Group. This measure excludes amortisation of intangible assets (excluding software) and
exceptional items.
For each component in the scope of our Group audit, we allocated a materiality that is less than our overall Group materiality. The range of materiality
allocated across components was between £0.8 million and £1.9 million.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £0.1 million (2016: £0.1 million)
as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons.
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170435 Johnson Service Group Annual Report Pt3_170435 Johnson Service Group Annual Report Pt3 02/03/2018 20:47 Page 48
48 Johnson Service Group PLC Annual Report and Accounts 2017
INDEPENDENT AUDITORS’ REPORT TO THE
MEMBERS OF JOHNSON SERVICE GROUP PLC CONTINUED
Going concern
In accordance with ISAs (UK) we report as follows:
Reporting obligation
We are required to report if we have anything material to add or draw attention to in respect of the directors’ statement in the financial statements
about whether the directors considered it appropriate to adopt the going concern basis of accounting in preparing the financial statements and the
directors’ identification of any material uncertainties to the Group’s ability to continue as a going concern over a period of at least twelve months from
the date of approval of the financial statements.
Outcome
We have nothing material to add or to draw attention to. However, because not all future events or conditions can be predicted, this statement is not a
guarantee as to the group’s ability to continue as a going concern.
Reporting on other information
The other information comprises all of the information in the Annual Report other than the financial statements and our auditors’ report thereon. The
directors are responsible for the other information. Our opinion on the financial statements does not cover the other information and, accordingly, we
do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any form of assurance thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other
information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially
misstated. If we identify an apparent material inconsistency or material misstatement, we are required to perform procedures to conclude whether
there is a material misstatement of the financial statements or a material misstatement of the other information. If, based on the work we have
performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report
based on these responsibilities.
With respect to the Strategic Report, Directors’ Report and Corporate Governance Statement, we also considered whether the disclosures required by
the UK Companies Act 2006 have been included.
Based on the responsibilities described above and our work undertaken in the course of the audit, the Companies Act 2006, (CA06) and ISAs (UK)
require us also to report certain opinions and matters as described below (required by ISAs (UK) unless otherwise stated).
Strategic Report and Directors’ Report
In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic Report and Directors’ Report for the
year ended 31 December 2017 is consistent with the financial statements and has been prepared in accordance with applicable legal
requirements. (CA06)
In light of the knowledge and understanding of the group and its environment obtained in the course of the audit, we did not identify any material
misstatements in the Strategic Report and Directors’ Report. (CA06)
The directors’ assessment of the prospects of the group and of the principal risks that would threaten the solvency or liquidity of the group
As a result of the directors’ voluntary reporting on how they have applied the UK Corporate Governance Code (the “Code”), we are required to report
to you if we have anything material to add or draw attention to regarding:
➔ The directors’ confirmation on page 30 of the Annual Report that they have carried out a robust assessment of the principal risks facing the
group, including those that would threaten its business model, future performance, solvency or liquidity.
➔ The disclosures in the Annual Report that describe those risks and explain how they are being managed or mitigated.
➔ The directors’ explanation on pages 4 and 5 of the Annual Report as to how they have assessed the prospects of the group, over what period they
have done so and why they consider that period to be appropriate, and their statement as to whether they have a reasonable expectation that the
group will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related
disclosures drawing attention to any necessary qualifications or assumptions.
We have nothing to report in respect of this responsibility.
Other Code Provisions
As a result of the directors’ voluntary reporting on how they have applied the Code, we are required to report to you if, in our opinion:
➔ The statement given by the directors, on page 25, that they consider the Annual Report taken as a whole to be fair, balanced and understandable,
and provides the information necessary for the members to assess the group’s position and performance, business model and strategy is
materially inconsistent with our knowledge of the group obtained in the course of performing our audit.
➔ The section of the Annual Report on page 31 describing the work of the Audit Committee does not appropriately address matters communicated
by us to the Audit Committee.
We have nothing to report in respect of this responsibility.
170435 Johnson Service Group Annual Report Pt3_170435 Johnson Service Group Annual Report Pt3 02/03/2018 20:47 Page 49
Annual Report and Accounts 2017 Johnson Service Group PLC 49
Responsibilities for the financial statements and the audit
Responsibilities of the directors for the financial statements
As explained more fully in the Directors’ Responsibilities Statement set out on page 25, the directors are responsible for the preparation of the
financial statements in accordance with the applicable framework and for being satisfied that they give a true and fair view. The directors are also
responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group’s ability to continue as a going concern, disclosing as
applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the group
or to cease operations, or have no realistic alternative but to do so.
Auditors’ responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether
due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a
guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise
from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors’ report.
Use of this report
This report, including the opinions, has been prepared for and only for the company’s members as a body in accordance with Chapter 3 of Part 16 of
the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to
any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
Other required reporting
Companies Act 2006 exception reporting
Under the Companies Act 2006 we are required to report to you if, in our opinion:
➔ we have not received all the information and explanations we require for our audit; or
➔ certain disclosures of directors’ remuneration specified by law are not made.
We have no exceptions to report arising from this responsibility.
Other voluntary reporting
Other Code provisions
The directors have prepared a corporate governance statement and requested that we review it as though the company were a premium listed
company. We have nothing to report in respect of the requirement for the auditors of premium listed companies to report when the directors’
statement relating to the company’s compliance with the Code does not properly disclose a departure from a relevant provision of the Code specified,
under the Listing Rules, for review by the auditors.
Other matter
We have reported separately on the company financial statements of Johnson Service Group PLC for the year ended 31 December 2017.
Graham Parsons (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Manchester
27 February 2018
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170435 Johnson Service Group Annual Report Pt4_170435 Johnson Service Group Annual Report Pt4 02/03/2018 21:01 Page 50
50 Johnson Service Group PLC Annual Report and Accounts 2017
CONSOLIDATED INCOME STATEMENT
Continuing Operations
Revenue
Operating profit
Operating profit before amortisation of intangible assets
(excluding software amortisation) and exceptional items
Amortisation of intangible assets (excluding software amortisation)
Exceptional items
– Costs in relation to business acquisition activity
– Pension costs
– Profit on disposal of freehold property
Operating profit
Finance cost
Notional pension interest
Total finance cost
Profit before taxation
Taxation charge*
Profit for the year from continuing operations
Profit/(loss) for the year from discontinued operations
Profit for the year attributable to equity holders
Earnings per share
Basic earnings per share
From continuing operations
From discontinued operations
From total operations
Diluted earnings per share
From continuing operations
From discontinued operations
From total operations
Adjusted basic earnings per share
From continuing operations
From discontinued operations
From total operations
Adjusted diluted earnings per share
From continuing operations
From discontinued operations
From total operations
Note
1
2
1
6
2
7
9
32
11
Year ended
31 December
2017
£m
290.9
34.8
Year ended
31 December
2016
£m
256.7
29.8
43.3
(8.0)
(0.5)
–
–
34.8
(3.2)
(0.4)
(3.6)
31.2
(5.8)
25.4
0.3
25.7
6.9p
0.1p
7.0p
6.9p
0.1p
7.0p
8.7p
–
8.7p
8.7p
–
8.7p
37.7
(6.9)
(1.2)
(0.3)
0.5
29.8
(3.3)
(0.6)
(3.9)
25.9
(5.0)
20.9
(0.3)
20.6
6.0p
(0.1p)
5.9p
5.9p
(0.1p)
5.8p
7.7p
0.4p
8.1p
7.6p
0.4p
8.0p
The notes on pages 65 to 96 are an integral part of these consolidated financial statements.
*
Including £1.7 million credit (2016: £1.5 million credit) relating to amortisation of intangible assets (excluding software amortisation) and £0.1
million credit (2016: £0.2 million credit) relating to exceptional items.
170435 Johnson Service Group Annual Report Pt4_170435 Johnson Service Group Annual Report Pt4 02/03/2018 21:01 Page 51
Annual Report and Accounts 2017 Johnson Service Group PLC 51
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Profit for the year
Items that will not be subsequently reclassified to profit or loss
Re-measurement and experience gains/(losses) on post-employment benefit obligations
Taxation in respect of re-measurement and experience (gains)/losses
Change in deferred tax due to change in tax rate
Items that may be subsequently reclassified to profit or loss
Cash flow hedges (net of taxation) – fair value gains/(losses)
– transfers to administrative expenses
– transfers to finance cost
Total other comprehensive income/(loss) for the year
Total comprehensive income for the year
Note
23
Year ended
31 December
2017
£m
25.7
3.2
(0.6)
(0.1)
0.2
–
0.4
3.1
28.8
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
Balance at 1 January 2016
Profit for the year
Other comprehensive income/(loss)
Total comprehensive income for the year
Share options (value of employee services)
Current tax on share options
Issue of share capital
Dividend paid
Transactions with Shareholders recognised
directly in Shareholders’ equity
Balance at 31 December 2016
Balance at 1 January 2017
Profit for the year
Other comprehensive income
Total comprehensive income for the year
Share options (value of employee services)
Current tax on share options
Issue of share capital
Dividend paid
Transactions with Shareholders recognised
directly in Shareholders’ equity
Balance at 31 December 2017
Share
Capital
£m
33.1
–
–
–
–
–
3.4
–
3.4
36.5
36.5
–
–
–
–
–
0.1
–
0.1
36.6
Share
Premium
£m
14.5
–
–
–
–
–
0.5
–
0.5
15.0
15.0
–
–
–
–
–
0.2
–
0.2
15.2
Merger
Reserve
£m
1.6
–
–
–
–
–
–
–
–
1.6
1.6
–
–
–
–
–
–
–
–
Capital
Redemption
Reserve
£m
0.6
–
–
–
–
–
–
–
–
0.6
0.6
–
–
–
–
–
–
–
–
Hedge
Reserve
£m
(0.8)
–
0.1
0.1
–
–
–
–
–
(0.7)
(0.7)
–
0.6
0.6
–
–
–
–
–
Retained
Earnings
£m
57.8
20.6
(3.0)
17.6
0.8
0.2
25.4
(7.7)
18.7
94.1
94.1
25.7
2.5
28.2
0.7
0.2
–
(9.5)
(8.6)
1.6
0.6
(0.1)
113.7
Year ended
31 December
2016
£m
20.6
(3.5)
0.6
(0.1)
(0.4)
0.2
0.3
(2.9)
17.7
Total
Equity
£m
106.8
20.6
(2.9)
17.7
0.8
0.2
29.3
(7.7)
22.6
147.1
147.1
25.7
3.1
28.8
0.7
0.2
0.3
(9.5)
(8.3)
167.6
The Group has an Employee Benefit Trust (EBT) to administer share plans and to acquire shares, using funds contributed by the Group, to meet
commitments to employee share schemes. At 31 December 2017, the EBT held 16,256 shares (2016: 20,739).
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170435 Johnson Service Group Annual Report Pt4_170435 Johnson Service Group Annual Report Pt4 02/03/2018 21:01 Page 52
52 Johnson Service Group PLC Annual Report and Accounts 2017
CONSOLIDATED BALANCE SHEET
Assets
Non-current assets
Goodwill
Intangible assets
Property, plant and equipment
Textile rental items
Trade and other receivables
Deferred income tax assets
Current assets
Inventories
Trade and other receivables
Derivative financial assets
Cash and cash equivalents
Assets classified as held for sale
Liabilities
Current liabilities
Trade and other payables
Current income tax liabilities
Borrowings
Derivative financial liabilities
Provisions
Liabilities directly associated with assets classified as held for sale
Non-current liabilities
Post-employment benefit obligations
Deferred income tax liabilities
Trade and other payables
Borrowings
Derivative financial liabilities
Provisions
Net assets
Equity
Capital and reserves attributable to the company’s shareholders
Share capital
Share premium
Merger reserve
Capital redemption reserve
Hedge reserve
Retained earnings
Total equity
Note
12
13
14
15
17
21
16
17
24
32
18
20
24
22
32
23
21
19
20
24
22
26
28
As at
31 December
2017
£m
120.3
43.5
89.3
50.0
0.3
2.9
306.3
2.9
47.2
0.1
5.3
–
55.5
65.3
3.8
14.5
–
2.2
–
85.8
12.0
9.5
3.1
82.1
0.2
1.5
108.4
167.6
36.6
15.2
1.6
0.6
(0.1)
113.7
167.6
As at
31 December
2016
£m
115.6
47.9
81.7
44.1
0.3
4.2
293.8
2.2
43.3
–
2.9
17.2
65.6
60.6
4.3
19.9
0.3
1.9
9.4
96.4
18.2
10.0
2.3
82.0
0.5
2.9
115.9
147.1
36.5
15.0
1.6
0.6
(0.7)
94.1
147.1
The notes on pages 65 to 96 are an integral part of these consolidated financial statements.
The financial statements on pages 50 to 96 were approved by the Board of Directors on 27 February 2018 and signed on its behalf by:
Yvonne Monaghan
Chief Financial Officer
170435 Johnson Service Group Annual Report Pt4_170435 Johnson Service Group Annual Report Pt4 02/03/2018 21:01 Page 53
CONSOLIDATED STATEMENT OF CASH FLOWS
Cash flows from operating activities
Profit for the year
Adjustments for:
Taxation charge/(credit) – continuing operations
Total finance cost
– discontinued operations
– continuing operations
– discontinued operations
Depreciation
Amortisation
Revaluation of assets classified as held for sale
Profit on sale of property, plant and equipment
(Increase)/decrease in inventories
(Increase)/decrease in trade and other receivables
Increase in trade and other payables
Costs in relation to business acquisition activity
Deficit recovery payments in respect of post-employment benefit obligations
Share-based payments
Post-employment benefit obligations
Decrease in provisions
Cash generated from operations
Interest paid
Taxation paid
Net cash generated from operating activities
Cash flows from investing activities
Acquisition of business (net of cash and overdrafts acquired)
Proceeds from sale of business (net of cash disposed) – discontinued operations
Purchase of property, plant and equipment
Proceeds from sale of property, plant and equipment
Purchase of textile rental items
Proceeds received in respect of special charges
Net cash used in investing activities
Cash flows from financing activities
Proceeds from borrowings
Repayment of borrowings
Capital element of finance leases
Net proceeds from issue of Ordinary shares
Dividend paid
Net cash (used in)/generated from financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Cash and cash equivalents comprise:
Cash
Overdraft
Within assets classified as held for sale
Cash and cash equivalents at end of year
The notes on pages 65 to 96 are an integral part of these consolidated financial statements.
Note
9
32
7
32
6
27
23
31
32
33
Annual Report and Accounts 2017 Johnson Service Group PLC 53
Year ended
31 December
2017
£m
Year ended
31 December
2016
£m
25.7
5.8
(0.3)
3.6
–
48.8
8.2
–
(0.1)
(0.7)
(2.1)
1.9
0.5
(3.4)
0.8
(0.1)
(1.0)
87.6
(2.8)
(6.9)
77.9
(9.2)
7.1
(16.5)
0.2
(43.1)
2.1
(59.4)
82.0
(88.2)
(5.3)
0.3
(9.5)
(20.7)
(2.2)
(1.5)
(3.7)
5.3
(9.0)
–
(3.7)
20.6
5.0
0.6
3.9
0.1
44.5
7.1
2.0
–
0.4
0.8
0.9
1.2
(1.9)
0.8
(0.1)
(4.4)
81.5
(3.0)
(5.9)
72.6
(58.0)
–
(15.5)
0.6
(34.5)
2.7
(104.7)
88.0
(69.3)
(5.3)
29.3
(7.7)
35.0
2.9
(4.4)
(1.5)
2.9
(5.2)
0.8
(1.5)
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170435 Johnson Service Group Annual Report Pt4_170435 Johnson Service Group Annual Report Pt4 02/03/2018 21:01 Page 54
54 Johnson Service Group PLC Annual Report and Accounts 2017
STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES
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 Group and Company financial statements were authorised for issue by the Board on 27 February 2018.
Basis of preparation
The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently
applied to the information presented, unless otherwise stated.
The consolidated financial statements of the Group have been prepared on a going concern basis in accordance with International Financial Reporting
Standards as adopted by the European Union (IFRS as adopted by the EU), IFRS Interpretation Committee (IFRS IC) interpretations and the
Companies Act 2006 applicable to companies reporting under IFRS. The consolidated financial statements have been prepared under the historical
cost convention, as modified by the revaluation of financial assets and financial liabilities (including derivative instruments) at fair value through profit or
loss.
The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management
to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity,
or areas where assumptions and estimates are significant to the consolidated financial statements, are disclosed below in the section entitled ‘Critical
accounting estimates and assumptions’.
New and amended standards adopted by the Group
Changes in accounting policy and disclosures
(a)
The following new standards, and amendments to standards, have been adopted by the Group for the first time for the financial year beginning on
1 January 2017:
➔ Additional disclosure that will enable users of financial statements to evaluate changes in liabilities arising from financing activities – Amendments
to IAS 7;
➔ Clarification on how to account for deferred tax assets related to debt instruments measured at fair value – Amendments to IAS 12; and
➔ Annual improvements to IFRSs 2014 – 2016 cycle relating to IFRS 12.
The adoption of these amendments did not have any impact on the current period or any prior period and is not likely to affect future periods; however
the impact of IAS 7 has been to revise the disclosure of net debt to separately identify changes in liabilities arising from financing activities.
Standards, amendments and interpretations to existing standards that are not yet effective and have not been early adopted by the Group
(b)
Certain new accounting standards and interpretations have been published that are not mandatory for 31 December 2017 reporting periods and have
not been early adopted by the Group:
➔ IFRS 9, Financial Instruments: IFRS 9 addresses the classification, measurement and derecognition of financial assets and financial liabilities,
introduces new rules for hedge accounting and a new impairment model for financial assets. Mandatory for financial years commencing on or after
1 January 2018.
The Group is to apply this standard retrospectively with the cumulative effect of initially applying this standard as an adjustment to the opening
balance of retained earnings as at 1 January 2018. The standard will not be applied to prior reporting periods.
Hedging relationships that qualified for hedge accounting in accordance with IAS 39 are to be regarded by the Group as continuing hedging
relationships under IFRS 9.
IFRS 9 introduces an ‘expected loss’ model for recognising impairment of financial assets held at amortised cost. This is different from IAS 39,
which had an incurred loss model where provisions were recognised only when there was objective evidence of impairment. This change of
approach will require the Group to consider forward-looking information to calculate expected credit losses regardless of whether there has been
an impairment trigger. The impact of this change is anticipated to have a small but immaterial increase to the level of impairment recognised.
This consideration of financial assets for impairment under IFRS 9 includes the requirement for lenders of intercompany loans to consider forward-
looking information to calculate expected credit losses. This change will apply to the Company financial statements only. Despite there being no
present intention of the Company to demand repayments, were demand to be made at the reporting date, it is deemed that the relevant
subsidiaries would be able to repay the intercompany loan within 12 months. No impairment and adjustment to opening retained earnings is
therefore deemed to be required.
➔ IFRS 15, Revenue from Contracts with Customers: The IASB has issued a new standard for the recognition of revenue. This will replace IAS 18
which covers contracts for goods and services and IAS 11 which covers construction contracts. The new standard is based on the principle that
170435 Johnson Service Group Annual Report Pt4_170435 Johnson Service Group Annual Report Pt4 02/03/2018 21:01 Page 55
Annual Report and Accounts 2017 Johnson Service Group PLC 55
revenue is recognised when control of a good or service transfers to a customer. The standard permits either a full retrospective or a modified
retrospective approach for the adoption. This is mandatory for financial years commencing on or after 1 January 2018.
The Group will apply the standard via the modified retrospective approach. The cumulative effect of initially applying this standard will be an
adjustment to the opening balance of retained earnings as at 1 January 2018. The standard will not be applied to prior reporting periods.
Due to the nature of the Group’s business activities and service contracts, the change in standard is not expected to significantly impact the
amount and/or timing of revenue recognition from servicing our customers. The Group’s contracts are repeat service based contracts where value
is transferred to the customer over time as the services are delivered. Therefore revenue is recognised on per item basis for delivery of laundered
textiles or in accordance with the terms of the contract for hotels, restaurants and events. Our customers concurrently receive and consume the
benefits of this service by the Group.
IFRS 15 does state that an asset should be recognised for costs that relate directly to a contract, are incremental to securing the contract and if
management expects to recover those costs. The asset should then be amortised as the services to which the asset relates are transferred to the
customer. The Group has identified employee sales commissions as specifically relating directly to a contract and therefore meeting this
requirement. Such costs are an estimated £1.5 million in the year to 31 December 2017. The Group will amortise these commissions over the
average contract life. Applying this change to commissions paid historically by the Group, is estimated to result in a £1.0 – £1.3 million credit to
opening retained earnings and a corresponding increase in net assets on the Balance Sheet.
The new standard also addresses consideration paid to customers. A reduction in revenue is to be recognised in the later of the period the Group
recognises revenue for the services provided or the period the Group pays or promises to pay the consideration.
Where costs have been identified as meeting this definition, the reduction in revenue is deemed to be the later of the above. Where revenue was
reduced due to such payments under previous accounting policies, the reduction in revenue is to be amortised over the average contract life under
IFRS 15. This results in an estimated £0.1 million credit to opening retained earnings and a corresponding increase in net assets on the Balance
Sheet.
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The Group will continue to work to design, implement and refine procedures to apply the new requirements of IFRS 15 and to finalise accounting
policy choices. As a result of this ongoing work, it is possible that there may be some changes to the impact above prior to the 30 June 2018
results being issued. However, at this time these are not expected to be significant.
➔ IFRS 16, Leases: IFRS 16 was issued in January 2016. It will result in almost all leases being recognised on the Balance Sheet as, from a lessee
perspective, the distinction between operating and finance leases is removed. Under the new standard, an asset (the right to use the leased item)
and a financial liability to pay rentals are recognised. The only exceptions are short term and low value leases. The accounting for lessors will not
significantly change. This is mandatory for financial years commencing on or after 1 January 2019.
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 can no longer be recognised as operating leases and will need to be brought onto the Group’s Balance Sheet from the date
of adoption of the new standard. The Group will elect to apply the following practical expedients:
➔ In determining whether existing contracts meet the definition of a lease, the Group will not reassess those contracts previously identified as
leases and will not apply the standard to those contracts not previously identified as leases.
➔ Leases of less than 12 months and leases with less than 12 months remaining as at the date of adoption of the new standard will not be within
the scope of IFRS 16.
➔ Leases for which the asset is of low value, for example IT equipment, will not be within the scope of IFRS 16.
The Group will also elect to apply this standard retrospectively with the cumulative effect of initially applying this standard as an adjustment to the
opening balance of retained earnings as at 1 January 2019. As a consequence of this, there is likely to be a material impact on the Balance Sheet
with a lease liability and a corresponding right of use asset to be recognised. There is anticipated to be a limited, if any, impact on the net assets of
the Group on the date of adoption. Based on the current definition of adjusted operating profit, there is likely to be an increase in the Group’s
adjusted operating profit as operating lease costs are replaced by a lower depreciation charge. There will also be an additional interest charge,
however, there will be no material effect on the overall Income Statement. The Group continues to perform work to quantify the impact of the new
standard. 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.
➔ IFRIC 23, Uncertainty over income tax treatments was issued in June 2017. IFRIC 23 explains how to recognise and measure deferred and
current income tax assets and liabilities where there is uncertainty over a tax treatment. Mandatory for financial years commencing on or after
1 January 2019. This standard is not expected to have a significant effect on the Group’s financial statements. The Group does not intend to adopt
IFRIC 23 before its mandatory date.
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56 Johnson Service Group PLC Annual Report and Accounts 2017
STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED
Judgements made in applying accounting policies
In the course of preparing these financial statements, certain judgements are made by the Group in the process of applying the Group’s accounting
policies. Those that have the most significant effect on either the amounts recognised in the Financial Statements or the presentation there of are
discussed below.
Segmental analysis
Prior to its disposal on 4 January 2017, the Drycleaning business comprised a single reporting segment with all other operating businesses being
reported within the ‘Textile Rental’ reporting segment. In addition, the Group also provided analysis for two further reporting segments: ‘Discontinued
Operations’ and ‘All Other Segments’. As a result of the Drycleaning disposal, the Committee considered whether it remained appropriate to continue
reporting under the remaining segments. Further details are disclosed within note 1 to the Consolidated Financial Statements.
Sources of estimation and uncertainty
The Group makes estimates and assumptions concerning the future. Whilst such estimates and assumptions are believed to be reasonable under the
circumstances, the resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that are
considered to have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are
discussed below:
Other intangible assets
(a)
Other intangible assets comprise customer contracts and relationships. The cost of the intangible asset is based upon management’s assessments of
projected cash flows. These calculations require the use of estimates. Further details are shown in note 13 of these Consolidated Financial
Statements.
Income taxes
(b)
The Group is subject to income taxes. Judgement is required in determining the provision for income taxes. There are many transactions and
calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Group recognises liabilities for anticipated
tax issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that
were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.
Post-employment benefit obligations
(c)
The Group operates two post retirement defined benefit arrangements (note 23). Asset valuations are based on the fair value of scheme assets. The
valuations of the liabilities of the schemes are based on statistical and actuarial calculations, using various assumptions including discount rates, future
inflation rates and pension increases, life expectancy of scheme members, flexible retirement options and cash commutations. The actuarial
assumptions may differ materially from actual experience due to changes in economic and market conditions, variations in actual mortality, higher or
lower cash withdrawal rates and other changes. Any of these differences could impact the assets or liabilities recognised in the Balance Sheet in
future periods.
Complex Customer Arrangements
(d)
The Group offers rebates to certain customers based on agreed fixed rates relating to the volume of services provided and goods purchased. Whilst
FRC guidance has highlighted complex customer arrangements as an area of focus, the Group’s rebates are not considered to be highly complex as:
they are volume related; there are generally written agreements in place; and historical estimates of rebates have been seen to be accurate. Any
estimates made in accruing customer rebates are considered to be appropriate.
Onerous leases, dilapidations and environmental costs
(e)
The Group makes provision for the anticipated net costs of onerous leases, dilapidations and environmental remediation costs. The timing of these
provisions coincides with the commitment to a formal plan of action or, if earlier, on divestment or on closure of inactive sites. The timing and value of
such payments are based on management estimates. Further details are shown in note 22 of these Consolidated Financial Statements.
Forward looking statements
The terms ‘expect’, ‘should be’, ‘will be’, ‘is likely to’ and similar expressions identify forward looking statements.
Although the Board believes that the expectations reflected in these forward looking statements are reasonable, such statements are subject to a
number of risks and uncertainties and actual results and events could differ materially from those currently expressed or implied in such forward
looking statements.
Factors which may cause future outcomes to differ from those foreseen in forward looking statements include, but are not limited to: general
economic conditions and business conditions in the Group’s markets; exchange and interest rate fluctuations; customers’ acceptance of its products
and services; the actions of competitors; and legislative, fiscal and regulatory developments.
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Annual Report and Accounts 2017 Johnson Service Group PLC 57
Consolidation
The Group controls an entity when the Group has power over an entity, is exposed to, or has rights to, variable returns from its involvement with the
entity and has the ability to affect these returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is
transferred to the Group. They are deconsolidated from the date that control ceases.
The accounting periods of subsidiary undertakings are co-terminous with those of the Company. Intercompany transactions, balances and unrealised
gains and losses on transactions between Group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides
evidence of an impairment of the asset transferred. Subsidiaries’ accounting policies have been changed, where necessary, to ensure consistency with
the policies adopted by the Group.
The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of an acquisition is measured as the
fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange. Where consideration due to
vendors is deferred, but is not contingent on future events, it is included in consideration when assessing the total acquisition cost and is accrued
within trade and other payables until such a time that the amounts are settled. Where consideration due to vendors is contingent on future events,
management’s assessment of the fair value of the amounts payable are included in consideration when assessing the total acquisition cost and is
accrued within trade and other payables until such a time that the amounts are settled. Identifiable assets acquired and liabilities and contingent
liabilities assumed in a business combination are measured initially at their fair value at the acquisition date, irrespective of the extent of any non-
controlling interest. The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired is recorded as
goodwill. If the cost of acquisition is less than the fair value of the Group’s share of the net assets of the subsidiary acquired, the difference is
recognised immediately in the Income Statement. Costs directly attributable to acquisitions are expensed to the Income Statement as an exceptional
item.
Segment reporting
Operating segments are identified in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief
operating decision maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as
the Board of Directors. For reporting purposes, operating segments are aggregated into reporting segments where operating segments are
considered to have similar economic conditions and characteristics and where the aggregation of operating segments provides information that
enables users to evaluate the nature and financial effects of the business activities in which the Group engages and the economic environments in
which it operates.
Alternative Performance Measures (APMs)
Throughout the Annual Report and Accounts, we refer to a number of different APMs. APMs are used by the Group to provide for further clarity and
transparency of the Group's financial performance. The APMs are used internally by management to monitor business performance, budgeting and
forecasting, and for determining Directors' remuneration and that of other management throughout the business.
APMs are non-IFRS measures. APMs used by the Group are as follows:
➔ Adjusted operating profit which refers to continuing operating profit before amortisation of intangible assets (excluding software amortisation) and
exceptional items;
➔ Adjusted profit before taxation which refers to adjusted operating profit less total finance cost;
➔ Adjusted EBITDA adjusted for acquisitions and disposals, which is used for gearing purposes, refers to adjusted operating profit for the relevant
year plus the depreciation charge for property, plant and equipment and software amortisation;
➔ Adjusted EPS which refers to EPS calculated based on adjusted profit after tax.
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The Board considers that all the APMs, all of which exclude the effects of non-recurring items or non-operating events, provide useful information for
Shareholders on underlying trends and performance of the Group.
Revenue recognition
Revenue represents the fair value of consideration received or receivable for the sale of goods and services supplied in the ordinary course of the
Group’s activities, and is stated exclusive of VAT, similar taxes, discounts, rebates and after eliminating sales within the Group. The Group recognises
monies received from customers as at the balance sheet date relating to services to be provided in future periods as deferred income which forms part
of trade and other payables. Revenue from goods and services provided to customers not invoiced as at the balance sheet date is recognised as
accrued income within trade and other receivables. Interest receivable on bank deposits and other items is not classed as revenue but included within
finance income.
Rendering of services
Revenue is recognised either on a per item basis for delivery of laundered textiles or in accordance with the terms of the contract for hotels,
restaurants and events.
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Sale of goods
Revenue is recognised when goods are sold from retail outlets or delivered to customers.
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STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED
Rebates
Rebates payable to customers, and receivable from suppliers, are recognised in line with relevant contractual terms. Rebates payable to customers are
charged directly to the Income Statement over the period to which they relate and are recognised as a deduction from revenue. Rebates receivable
from suppliers are either recognised directly in the Income Statement, or as a reduction in the value of acquired textile rental items, dependent on the
nature of goods acquired from suppliers. Supplier rebates recognised in the Income Statement are recognised within cost of sales.
Exceptional items
Items that are material in size, non-operating or non-recurring in nature are presented as exceptional items in the Income Statement, within the
relevant account heading. The Directors are of the opinion that the separate recording of exceptional items provides helpful information about the
Group’s underlying business performance. Events which may give rise to the classification of items as exceptional include, but are not restricted to,
restructuring of businesses, gains or losses on the disposal of Workwear or industrial properties, one off gains or losses relating to pension liabilities
and expenses incurred and the subsequent integration costs in relation to business acquisitions.
Employee benefits
Post-employment benefits
The Group operates various pension schemes. The schemes are funded through payments to insurance companies or trustee-administered funds,
determined by periodic actuarial calculations. The Group has both defined benefit and defined contribution plans.
A defined contribution plan is a pension plan under which the Group pays contributions to publicly or privately administered pension insurance plans on
a mandatory, contractual or voluntary basis. The Group has no legal or constructive obligations to pay further contributions if the fund does not hold
sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. A defined benefit plan is a pension plan
that is not a defined contribution plan. Typically defined benefit plans define an amount of pension benefit that an employee will receive on retirement,
usually dependent on one or more factors such as age, years of service and compensation.
The liability recognised in the Balance Sheet in respect of defined benefit pension plans is the present value of the defined benefit obligation at the
balance sheet date, less the fair value of plan assets. The defined benefit obligation is calculated periodically by an independent actuary using the
projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using
interest rates of high-quality corporate bonds that are denominated in the currency in which benefits will be paid, and that have terms to maturity
approximating to the terms of the related pension liability.
Current and past service costs are recognised immediately in the Income Statement. Interest cost on plan liabilities and interest income on plan assets
are recognised in finance costs. Curtailment gains arising from amendments to the terms of a defined benefit plan such that a significant element of
future service by current employees will no longer qualify for benefits, or will only qualify for reduced benefits, are recognised in the Income Statement.
Re-measurement gains and losses arising from experience adjustments and changes in actuarial and demographic assumptions are charged or
credited to the Consolidated Statement of Comprehensive Income in the period in which they arise.
For defined contribution plans, contributions are recognised as an employee benefit expense when they are due. Prepaid contributions are recognised
as an asset to the extent that a cash refund or a reduction in the future payments is available.
Other post-employment benefit obligations
The Group provides unfunded post-employment healthcare benefits to some retirees. The entitlement to these benefits is usually conditional on the
employee remaining in service up to retirement age and the completion of a minimum service period. The expected costs of these benefits are
accrued over the period of employment using the same accounting methodology as used for defined benefit pension plans. The liability is recognised
on the Balance Sheet within ‘Post-employment benefit obligations’. Re-measurement gains and losses arising from experience adjustments and
changes in actuarial assumptions are charged or credited to equity in the Consolidated Statement of Comprehensive Income in the period in which
they arise.
Share-based compensation
The Group operates a number of equity-settled, share-based compensation plans. The economic cost of awarding shares and share options to
employees is recognised as an expense in the Income Statement equivalent to the fair value of the benefit awarded. The fair value at the grant date is
determined by reference to option pricing models, principally Binomial and Monte Carlo models. The fair value of the award is recognised in the Income
Statement over the vesting period of the award. At each balance sheet date, the Group revises its estimate of the number of options that are expected
to become exercisable. Any revision to the original estimate is reflected in the Income Statement with a corresponding adjustment to equity to the
extent it relates to past service and the remainder over the rest of the vesting period. All options cancelled are fully expensed to the Income Statement
upon cancellation. The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share
premium when the options are exercised. Any amount charged or credited to the Income Statement by any of the Group’s subsidiaries is reflected in
the books of the Company via an increase or decrease in investments, with a corresponding increase or decrease to equity. These entries are
eliminated within the Consolidated Financial Statements.
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Annual Report and Accounts 2017 Johnson Service Group PLC 59
Bonus plans
The Group recognises an expense and a liability for bonuses based on the profit attributable to the Group or business as appropriate and other
pre-determined performance criteria. The Group recognises a provision where it is contractually obliged or where there is a past practice that has
created a constructive obligation.
Termination benefits
The Group recognises termination benefits when it is demonstrably committed to the termination of the employment of current employees according
to a detailed formal plan without possibility of withdrawal.
Discontinued operations and assets held for sale
Business components that represent separate major lines of business or geographical areas of operations are recognised as discontinued if the
operations have been disposed of, or meet the criteria to be classified as held for sale under IFRS 5. Assets and disposal groups are classified as held
for sale if their carrying amount will be principally recovered through a sale transaction rather than through continuing use. This condition is regarded
as met only when the sale is highly probable, expected to be completed within one year and the asset (or disposal group) is available for immediate
sale in its present condition. Disposal groups or assets held for sale are held at the lower of their carrying amount on the date they are classified as
held for sale and fair value less costs to dispose.
Impairment of non-financial assets
Assets that have an indefinite useful life, for example goodwill, are not subject to amortisation and are tested annually for impairment. Assets that are
subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be
recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable
amount is the higher of an asset’s fair value less costs to dispose and value in use. For the purposes of assessing impairment, assets are grouped at
the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets, other than goodwill, that suffer an
impairment are reviewed for possible reversal of the impairment at each reporting date. Value in use calculations are considered first followed by fair
value less costs to dispose if it is deemed necessary. See note 12 for further information.
Intangible assets
Goodwill
For acquisitions since 28 December 2003, goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the
identifiable net assets of the acquired business at the date of acquisition. For acquisitions prior to this date, goodwill is included at the amount recorded
previously under UK GAAP. For acquisitions prior to 1 January 2010, the cost of an acquisition includes related expenses but such costs are excluded
for acquisitions after this date.
Goodwill on business acquisitions is included in non-current assets. Negative goodwill arising on acquisition is recognised directly in the Income
Statement.
Gains and losses on the disposal of a business include the carrying amount of goodwill relating to the business sold. Goodwill is tested annually for
impairment and carried at cost less accumulated impairment losses. Where an impairment is identified, it is charged to the Income Statement within
amortisation and impairment of intangible assets (excluding software). Impairment losses on goodwill are not reversed.
Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation is made to those cash-generating units or groups
of cash-generating units that are expected to benefit from the business combination in which the goodwill arose.
Capitalised software
Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specific software, and are
included on the Balance Sheet within intangible assets. Costs are amortised, once commissioned, over their estimated useful lives (four to ten years).
Costs associated with the general development and maintenance of computer software programs are recognised as an expense as incurred. Costs
that are directly associated with the production of identifiable and unique software products controlled by the Group, and that are expected to
generate economic benefits exceeding costs beyond one year, are recognised as intangible assets. Direct costs include the costs of employees
involved in software development and an appropriate portion of relevant overheads.
Computer software development costs recognised as assets are amortised over their estimated useful lives (not exceeding ten years). Amortisation of
computer software is charged to operating profit before amortisation of intangible assets (excluding software) and exceptional items.
Other intangible assets
Other intangible assets comprise customer contracts and relationships, recognised at cost. They have a finite useful life and are carried at cost less
accumulated amortisation. Amortisation is calculated using the straight-line method to allocate the cost of the intangible assets over their estimated
useful lives (four to ten years).
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STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED
Property, plant and equipment
Property, plant and equipment is stated at cost, less depreciation, which is calculated to write off these assets, by equal annual instalments, over their
estimated useful lives. Cost includes expenditure which is directly attributable to the acquisition of the asset. The estimated life of plant and fixtures is
two to fifteen years and of vehicles (included within plant and equipment) four to five years. Improvements to short leasehold properties are amortised
over the shorter of the terms of the leases and their useful life. The residual values and useful lives of assets are reviewed, and adjusted if appropriate,
at each balance sheet date.
Freehold and long leasehold buildings are depreciated over their estimated remaining useful life not exceeding 50 years commencing on 26
December 1999 or, if later, date of purchase. Land is not depreciated. The Group has not adopted a policy of revaluation but the carrying amounts of
freehold and long leasehold properties reflect previous valuations. In the event of an impairment in property value the deficit below cost is charged to
the Income Statement.
The fit out costs of new freehold or long leasehold industrial buildings are depreciated, in equal annual instalments, over their expected useful lives
which range from 10 to 25 years from the date on which the assets are fully commissioned.
Subsequent costs are included in the asset’s carrying amount, or recognised as a separate asset, as appropriate, only when it is probable that future
economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the
replaced part is derecognised. All other repairs and maintenance costs are charged to the Income Statement during the financial period in which they
are incurred.
No depreciation is provided for assets in the course of construction until they are completed and put in use as management intended.
The cost of property, plant and equipment acquired through business combinations is accounted for as the fair value of assets acquired.
Gains and losses on disposals are determined by comparing the net proceeds with the carrying amount and are recognised within the Income
Statement.
Textile rental items
Textile rental items which principally comprise workwear garments, cabinet towels, linen and dust mats are initially treated as inventories. On issue to
customers or into pool stock, rental items are transferred to non-current assets and are stated at invoiced cost. Depreciation is calculated on a straight
line basis over the estimated lives of the items in circulation, which range from two to five years. Issued textile rental items bought through acquisition
of other businesses are accounted for as the fair value of issued textile rental items acquired will be the deemed cost of these items.
Charges are levied in respect of lost or damaged items or where a customer terminates the service before the end of the contracted period. Such
charges are referred to as ‘special charges’. Where proceeds are received in respect of these special charges the amounts received are deducted from
the carrying value of those items.
Where proceeds are received in respect of textile rental items withdrawn from circulation these are deducted from the carrying value of those
amounts.
Leased assets
Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Rentals
payable in respect of operating leases (net of any incentives received from the lessor) are charged to the Income Statement on a straight line basis
over the lease term.
Where assets are financed by leasing or hire purchase arrangements, which give rights approximating to ownership, the assets are treated as if they
had been purchased outright and are capitalised at their fair value at the date of inception of the lease. The capital element of outstanding lease or hire
purchase commitments is treated as a liability and disclosed as obligations under finance lease agreements. Interest is allocated to the Income
Statement over the period of the lease or hire purchase agreement and represents a constant proportion of the outstanding commitment.
Inventories
Stocks of materials, stores, goods for resale and new rental items are valued at the lower of cost and net realisable value. Cost is stated on either a
first in, first out basis or average cost basis and comprises invoiced cost in respect of the purchase of finished goods and materials, direct labour and
direct transportation costs in respect of garments for sale. It excludes borrowing costs.
Net realisable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses. Costs of inventories
include the transfer from equity of any gains/losses on qualifying cash flow hedges of purchases of goods. Provision is made for obsolete, defective
and slow moving stock.
Trade receivables
Trade receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method, less provision
for impairment.
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A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts
due according to the original terms of the receivables. Significant financial difficulties of the counterparty, probability that the counterparty will enter
bankruptcy or financial reorganisation, and default or delinquency in payments are considered indicators that the trade receivable is impaired. The
amount of the provision is the difference between the carrying amount and the present value of estimated future cash flows of the asset, discounted,
where material, at the original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account, and the
amount of the loss is recognised in the Income Statement within ‘administrative costs’. When a trade receivable is uncollectable, it is written off against
the allowance account for trade receivables. Subsequent recoveries of amounts previously written off are credited against ‘administrative costs’ in the
Income Statement.
Cash and cash equivalents
Cash and cash equivalents in the Balance Sheet comprise cash at bank and in hand.
In accordance with IAS 32: ‘Financial instruments: Presentation’, where banking arrangements have a right of set off, bank overdrafts are not netted
against cash and cash equivalents, with the resulting net position shown as either a bank overdraft or a cash balance as appropriate, but are instead
shown within borrowings in current liabilities on the Balance Sheet.
For the purpose of the Consolidated Statement of Cash Flows, cash and cash equivalents consist of cash and cash equivalents as defined above, net
of outstanding bank overdrafts, including cash included within Assets classified as held for sale.
Trade payables
Trade payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method. Trade payables
are non-interest bearing.
Borrowings
Borrowings are recognised initially at fair value, net of transaction costs incurred. Transaction costs are amortised, as a finance cost, over the expected
term of the facility, using the effective interest method. Borrowings are classified on the Balance Sheet as either current or non-current liabilities,
dependent upon the maturity date of the loan.
Bank overdrafts are shown within borrowings in current liabilities on the Balance Sheet.
Net debt
Net debt is defined as borrowings, less cash and cash equivalents.
Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of
resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.
Provision is not made for future operating losses. Provisions are discounted where the impact is deemed to be material.
Property
Provision is made for the anticipated net costs of onerous leases on non-trading properties and for dilapidations and environmental remediation costs.
Liabilities for environmental costs are recognised as a property provision when environmental assessments or remediation are probable and the
associated costs can be reliably estimated. Generally, the timing of these provisions coincides with the commitment to a formal plan of action or, if
earlier, on divestment or closure of inactive sites. The provision will be utilised by the payment of annual costs, shortfalls on sub-tenanted property,
expenses of early termination, environmental remediation operations and dilapidations.
Where management have identified a loss making trading property that is leased, but it is uneconomic to close at the present time, and it is unlikely to
be restored to profitability, a provision has been recognised for the least net cost of exiting these stores.
Self insurance
Provision is made for the expected costs of uninsured incidents arising prior to the balance sheet date and for the anticipated cost of benefits due to
existing claimants under the, now discontinued, self-insured incapacity payroll scheme.
Taxation
Current tax
Current tax assets and liabilities for the current and prior years are measured at the amount expected to be recovered from or paid to the tax
authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the balance sheet date.
Deferred tax
Deferred tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their
carrying amounts in the financial statements. Deferred tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction,
other than a business combination, that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred tax is determined
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62 Johnson Service Group PLC Annual Report and Accounts 2017
STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED
using tax rates (and laws) that have been enacted or substantively enacted by the balance sheet date and that are expected to apply when the related
deferred tax asset is realised or the deferred tax liability is settled.
Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary
differences can be utilised.
Foreign currency translation
The financial statements are presented in sterling, which is the functional and presentational currency of the Group and Company.
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign
exchange gains and losses resulting from the settlement of such transactions and from the translation at year end exchange rates of monetary assets
and liabilities denominated in foreign currencies are recognised in the Income Statement, except where deferred in equity as qualifying cash flow
hedges, or where hedge accounting is applied, as explained below.
Derivative financial instruments and hedging activities
Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured at their fair value. The
method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the
item being hedged. The Group designates certain derivatives as hedges of the variability of cash flows (cash flow hedge).
The Group documents, at the inception of the transaction, the relationship between hedging instruments and hedged items, as well as its risk
management objective and strategy for undertaking various hedge transactions. The Group also documents its assessment, both at hedge inception
and on an ongoing basis, of whether the derivatives that are used in hedging transactions are effective in offsetting changes in the cash flows of
hedged items.
Cash flow hedges
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in equity. The gain or
loss relating to the ineffective portion is recognised immediately in the Income Statement.
Amounts accumulated in equity are recycled in the Income Statement in the periods when the hedged item will affect profit or loss (for example, when
the forecast transaction that is hedged takes place). However, when the forecast transaction that is hedged results in the recognition of a non-financial
asset (for example, inventory) or a liability, the gains and losses previously deferred in equity are transferred from equity and included in the initial
measurement of the cost of the asset or liability.
When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing
in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in the Income Statement. When a
forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the Income
Statement.
Derivatives that do not qualify for hedge accounting
Certain derivative instruments do not qualify for hedge accounting. Such derivatives are classified as at fair value through profit or loss, and changes in
their fair value are recognised immediately in the Income Statement.
Investment in own shares
Ordinary shares in the Company held by the Trustee of the Employee Benefit Trust (EBT) are recorded in the Balance Sheet as a reduction in
Shareholders’ equity.
Dividend distribution
Dividends to holders of equity instruments declared after the balance sheet date are not recognised as a liability as at the balance sheet date. Final
dividend distributions to the Company’s Shareholders are recognised in the Group’s financial statements in the period in which the dividends are
approved by the Company’s Shareholders. Interim dividends are recognised when paid.
Shareholders’ equity
Share capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a
deduction, net of tax, from the proceeds.
Share premium
Amounts in excess of the nominal value of Ordinary shares issued are recognised in share premium except where 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.
170435 Johnson Service Group Annual Report Pt4_170435 Johnson Service Group Annual Report Pt4 02/03/2018 21:01 Page 63
Annual Report and Accounts 2017 Johnson Service Group PLC 63
Capital redemption reserve
Amounts in respect of the redemption of certain of the Company’s ordinary shares are recognised in the Capital redemption reserve.
Merger reserve
The merger reserve represents the difference arising on completion of the relevant mergers in accordance with applicable accounting standards.
Hedging reserve
The hedging reserve represents the accumulated movements in the Group’s derivative financial instruments that have been designated as hedging
instruments. Amounts are transferred in and out of the reserve on the revaluation, or realisation, of identified hedging instruments.
Financial risk factors
Financial risk management
1
The Group’s activities expose it to a variety of financial risks: market risk (including currency risk, cash flow interest rate risk and fair value interest rate
risk), price risk, credit risk and liquidity risk. The Group’s overall risk management programme focuses on the unpredictability of financial markets and
seeks to minimise potential adverse effects on the Group’s financial performance. The Group uses derivative financial instruments to hedge certain risk
exposures.
Risk management is carried out by a central treasury department (Group Treasury) under policies approved by the Board. Group Treasury identifies,
evaluates and hedges financial risks in close co-operation with the Group’s operating companies. The Board provides written principles for overall risk
management, as well as written policies covering specific areas, such as foreign exchange risk, interest rate risk, credit risk, use of derivative financial
instruments and non-derivative financial instruments and investment of excess liquidity.
(a) Market risk
Currency risk
The Group is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the US dollar and the Euro. Foreign
exchange risk arises when future commercial transactions, or recognised assets or liabilities, are denominated in a currency that is not the entity’s
functional currency.
As further detailed in note 24 of these Consolidated Financial Statements, the Group exposure to currency risk is minimal.
Cash flow and fair value interest rate risk
As the Group has no significant interest-bearing assets, the Group’s income and operating cash flows are substantially independent of changes in
market interest rates.
The Group’s interest rate risk arises from its borrowings. Borrowings issued at variable rates expose the Group to cash flow interest rate risk.
Borrowings issued at fixed rates expose the Group to fair value interest rate risk.
Further details are provided in the Principal Risks and Uncertainties section. Note 24 to the Consolidated Financial Statements provides additional
disclosures regarding cash flow and fair value interest rate risk.
Price risk – Utilities and fuel
Key costs incurred by the Group in its operations include utilities costs for gas, electricity, water and effluent. The Group also incurs significant costs in
respect of diesel given the fleet of vehicles operated across the Group. Changes in utilities or fuel costs could have a material impact on the Group’s
financial performance.
The Group takes steps to mitigate the risk of price changes across both utilities and fuel as appropriate. In respect of gas and electricity, the Group
enters contracts with suppliers to fix prices for determined periods, normally up to one year, ensuring the Group has appropriate visibility of future costs
and to protect the Group, in the short term, over price volatility.
To try and mitigate the price risk associated with diesel costs the Group has entered into certain forward contracts with financial institutions to fix an
element of the diesel cost being incurred by the Group. Contracts are in place to cover a portion of the Group’s forecast diesel usage and allow for
actual costs to be swapped for a fixed rate on a monthly basis. Additional details of the contracts entered into by the Group are included in note 24.
Credit risk
(b)
Credit risk is managed on a Group basis. Credit risk arises from cash and cash equivalents, derivative financial instruments and deposits with banks
and financial institutions, as well as credit exposures to wholesale and retail customers, including outstanding receivables and committed transactions.
For banks and financial institutions, only independently rated parties with a minimum rating of ‘A-2’ are accepted. If wholesale customers are
independently rated, these ratings are used. If there is no independent rating, Management assesses the credit quality of the customer, taking into
account its financial position, past experience and other factors. Individual risk limits are set based on internal or external ratings in accordance with
limits set by the Board. The utilisation of credit limits is regularly monitored. Sales to retail customers are generally settled in cash or using major credit
cards.
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170435 Johnson Service Group Annual Report Pt4_170435 Johnson Service Group Annual Report Pt4 02/03/2018 21:01 Page 64
64 Johnson Service Group PLC Annual Report and Accounts 2017
STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED
Note 24 provides both numerical and narrative disclosures regarding credit risk.
Liquidity risk
(c)
Prudent liquidity risk management involves maintaining sufficient cash reserves and maintaining the availability of funding through an adequate
amount of committed credit facilities. Due to the dynamic nature of the underlying businesses Group Treasury maintains flexibility in funding by
maintaining availability under committed credit lines.
Management monitors rolling forecasts of the Group’s liquidity reserve (comprising an undrawn borrowing facility (note 20) and cash and cash
equivalents (note 24)) on the basis of expected cash flow.
Capital risk management
2
The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for
Shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.
Further details are provided in note 24.
170435 Johnson Service Group Annual Report Pt4_170435 Johnson Service Group Annual Report Pt4 02/03/2018 21:01 Page 65
Annual Report and Accounts 2017 Johnson Service Group PLC 65
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Segment analysis
1
Segment information is presented based on the Group’s management and internal reporting structure as at 31 December 2017.
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 the reporting in the Annual Report.
Segment Reporting
Prior to its disposal on 4 January 2017, the Drycleaning business comprised a single reporting segment with all other operating businesses being
reported within the ‘Textile Rental’ reporting segment. In addition, the Group also provided analysis for two further reporting segments: ‘Discontinued
Operations’ and ‘All Other Segments’. As a result of the Drycleaning disposal, the Board considered whether it remained appropriate to continue
reporting under the remaining segments.
(2)
The Board considered the aggregation criteria set out within IFRS 8, ‘Operating Segments’, which allows for two or more operating segments to be
combined as a single reporting segment if:
(1)
aggregation provides financial statement users with information that allows them to evaluate the business and the environment in which it
operates; and
they have similar economic characteristics (e.g. similar long-term average gross margins would be expected) and are similar in each of the
following respects:
➔ the nature of the products and services;
➔ the nature of the production processes;
➔ the type or class of customer for their products and services;
➔ the methods used to distribute their products or provide their services; and
➔ the nature of the regulatory environment (i.e. banking, insurance or public utilities), if applicable.
After careful consideration, the Board deemed it appropriate to introduce two new reporting segments (in addition to ‘Discontinued Operations’ and ‘All
Other Segments’), being:
(1) Workwear: comprising of our Apparelmaster business only; and
(2) Hotel, Restaurants and Catering (‘HORECA’): comprising of our Stalbridge, London Linen, Afonwen (including PLS) and Bourne businesses,
each of which are a separate operating segment.
The Board’s rationale for aggregating the Stalbridge, London Linen, Afonwen and Bourne operating segments into a single reporting segment is set
out below:
➔ the gross margins of each operating segment are within a similar range, with the long-term average margin expected to further align;
➔ the nature of the customers, products and production processes of each operating segment are very similar;
➔ the nature of the regulatory environment is the same due to the similar nature of products, processes and customers involved; and
➔ distribution is via exactly the same method across each operating segment.
The 2017 segmental analysis has, therefore, been prepared as described above and, in accordance with IFRS 8, the 2016 segmental analysis has
been adjusted to reflect the position had these changes been in place throughout the year ended 31 December 2016.
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 purpose of segmental
reporting. Other than as described above, 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 are part of the reconciliation to total assets and liabilities.
Exceptional items have been included within the appropriate reporting segment as shown on pages 66 to 67.
Workwear
Supply and laundering of workwear garments and protective wear.
HORECA
Linen services for the hotel, restaurant and catering sector.
➔ Apparelmaster
➔ Stalbridge
➔ London Linen
➔ Bourne
➔ Afonwen (including PLS)
All Other Segments
Comprising of central and Group costs.
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170435 Johnson Service Group Annual Report Pt4_170435 Johnson Service Group Annual Report Pt4 02/03/2018 21:01 Page 66
66 Johnson Service Group PLC Annual Report and Accounts 2017
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
1
Segment analysis continued
Year ended 31 December 2017
Revenue
Continuing
Total Revenue
Result
Operating profit/(loss) before amortisation of intangible assets
(excluding software amortisation) and exceptional items
Amortisation of intangible assets (excluding software amortisation)
Exceptional items:
– Costs in relation to business acquisition activity
Operating profit/(loss)
Total finance cost
Profit before taxation
Taxation
Profit for the year from continuing operations
Profit for the year from discontinued operations
Profit for the year attributable to equity holders
Balance sheet information
Segment assets
Unallocated assets: Deferred income tax assets
Derivative financial assets
Cash and cash equivalents
Total assets
Segment liabilities
Unallocated liabilities: Deferred income tax liabilities
Bank borrowings
Current income tax liabilities
Derivative financial liabilities
Post-employment benefit obligations
Total liabilities
Other information
Non-current asset additions
– Property, plant and equipment
– Textile rental items
Depreciation and amortisation expense
– Property, plant and equipment
– Textile rental items
– Intangible software
– Customer contracts
Workwear
£m
HORECA
£m
All Other Segments
£m
122.4
168.5
–
21.1
(0.5)
–
20.6
26.8
(7.5)
(0.5)
18.8
(4.6)
–
–
(4.6)
Discontinued Operations
£m
Workwear
£m
HORECA
£m
All Other Segments
£m
–
116.8
236.0
0.7
(4.1)
(29.4)
(45.1)
(3.5)
–
–
–
–
–
–
4.7
17.8
4.6
15.8
–
0.5
10.6
25.9
7.9
20.5
0.2
7.5
–
–
–
–
–
–
The results, assets and liabilities of all segments arise in the Group’s country of domicile, being the United Kingdom.
Total
£m
290.9
290.9
43.3
(8.0)
(0.5)
34.8
(3.6)
31.2
(5.8)
25.4
0.3
25.7
Total
£m
353.5
2.9
0.1
5.3
361.8
(82.1)
(9.5)
(86.6)
(3.8)
(0.2)
(12.0)
(194.2)
15.3
43.7
12.5
36.3
0.2
8.0
170435 Johnson Service Group Annual Report Pt4_170435 Johnson Service Group Annual Report Pt4 02/03/2018 21:01 Page 67
67 Johnson Service Group PLC Annual Report and Accounts 2017
Annual Report and Accounts 2017 Johnson Service Group PLC 67
Annual Report and Accounts 2017 Johnson Service Group PLC 67
1
Segment analysis continued
Year ended 31 December 2016 (Restated)
Revenue
Continuing
Discontinued
Total Revenue
Result
Operating profit/(loss) before amortisation of intangible assets
(excluding software amortisation) and exceptional items
Amortisation of intangible assets (excluding software amortisation)
Exceptional items:
– Costs in relation to business acquisition activity
– Pension costs
– Profit on disposal of freehold property
Operating profit/(loss)
Total finance cost
Profit before taxation
Taxation
Profit for the year from continuing operations
Loss for the year from discontinued operations
Profit for the year attributable to equity holders
Balance sheet information
Segment assets
Unallocated assets:
Deferred income tax assets
Cash and cash equivalents
Total assets
Segment liabilities
Unallocated liabilities: Deferred income tax liabilities
Bank borrowings
Current income tax liabilities
Derivative financial liabilities
Post-employment benefit obligations
Total liabilities
Other information
Non-current asset additions
– Property, plant and equipment
– Textile rental items
Depreciation and amortisation expense
– Property, plant and equipment
– Textile rental items
– Intangible software
– Customer contracts
Workwear
£m
HORECA
£m
All Other Segments
£m
117.7
139.0
–
19.9
(0.5)
–
–
0.5
19.9
21.8
(6.4)
(1.2)
–
–
14.2
(4.0)
–
–
(0.3)
–
(4.3)
Discontinued Operations
£m
Workwear
£m
HORECA
£m
All Other Segments
£m
17.2
116.5
217.5
1.1
(13.7)
(32.0)
(42.6)
(3.2)
0.7
–
1.4
–
–
–
5.5
17.0
4.3
16.5
–
0.5
9.4
18.4
6.4
15.9
0.2
6.4
–
–
–
–
–
–
The results, assets and liabilities of all segments arise in the Group’s country of domicile, being the United Kingdom.
Total
£m
256.7
44.3
301.0
37.7
(6.9)
(1.2)
(0.3)
0.5
29.8
(3.9)
25.9
(5.0)
20.9
(0.3)
20.6
Total
£m
352.3
4.2
2.9
359.4
(91.5)
(10.0)
(87.5)
(4.3)
(0.8)
(18.2)
(212.3)
15.6
35.4
12.1
32.4
0.2
6.9
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N
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F
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N
N
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O
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M
P
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A
A
N
N
Y
Y
F
F
N
N
A
A
N
N
C
C
A
A
L
L
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A
A
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M
M
E
E
N
N
T
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S
S
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H
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A
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L
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68 Johnson Service Group PLC Annual Report and Accounts 2017
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
2
Expenses by function
Revenue
Rendering of services
Sale of goods
Total revenue
Cost of sales
Administrative expenses
Distribution costs
Continuing
2017
£m
287.2
3.7
290.9
(161.7)
(39.2)
(46.7)
Operating profit before amortisation of intangible assets
(excluding software amortisation) and exceptional items
43.3
Amortisation of intangible assets
(excluding software amortisation)
Exceptional items
Operating profit
(8.0)
(0.5)
34.8
Discontinued
2017
£m
–
–
–
–
–
–
–
–
–
–
Total
2017
£m
287.2
3.7
290.9
(161.7)
(39.2)
(46.7)
43.3
(8.0)
(0.5)
34.8
The items outlined below have been charged/(credited) to the Income Statement in deriving operating profit:
Employee benefit expense (Note 4)
Auditors’ remuneration (Note 3)
Amortisation of intangible assets:
Capitalised software
Customer contracts
Exceptional items
Depreciation and impairment of tangible fixed assets:
Property, plant and equipment held under finance
lease agreements
Owned property, plant and equipment
Textile rental items
Operating leases:
Land and buildings
Sublet rental income
Plant and equipment
3
Auditors’ remuneration
Continuing
2017
£m
124.8
0.5
0.2
8.0
0.5
3.0
9.5
36.3
3.8
(0.4)
4.0
Discontinued
2017
£m
–
–
–
–
–
–
–
–
–
–
–
Total
2017
£m
124.8
0.5
0.2
8.0
0.5
3.0
9.5
36.3
3.8
(0.4)
4.0
Fees payable for the audit of the Company
Fees payable for the audit of the Company’s subsidiaries and pension schemes
Fees payable for services relating to tax compliance
Fees payable for services relating to transaction services
Continuing
2016
£m
253.1
3.6
256.7
(145.2)
(37.8)
(36.0)
37.7
(6.9)
(1.0)
29.8
Continuing
2016
£m
109.3
0.6
0.2
6.9
1.0
2.1
8.6
32.4
3.7
(0.5)
3.5
Discontinued
2016
£m
43.8
0.5
44.3
(36.0)
(4.3)
(2.0)
2.0
–
0.4
2.4
Discontinued
2016
£m
20.7
0.1
–
–
(0.4)
–
1.4
–
7.0
(0.7)
0.3
2017
£m
0.1
0.2
0.1
0.1
0.5
Total
2016
£m
296.9
4.1
301.0
(181.2)
(42.1)
(38.0)
39.7
(6.9)
(0.6)
32.2
Total
2016
£m
130.0
0.7
0.2
6.9
0.6
2.1
10.0
32.4
10.7
(1.2)
3.8
2016
£m
0.1
0.3
0.1
0.2
0.7
Included within the above is an amount of £25,000 (2016: £20,000) in respect of fees payable to the Company’s auditors for services relating to the
audit of the Company’s pension schemes.
Fees payable for services relating to transaction services are largely in relation to the acquisition of Clayfull Limited and StarCounty Textile Services
Limited. See note 31 for information relating to these acquisitions.
170435 Johnson Service Group Annual Report Pt4_170435 Johnson Service Group Annual Report Pt4 02/03/2018 21:01 Page 69
Annual Report and Accounts 2017 Johnson Service Group PLC 69
4
Employee benefit expense
Continuing operations
Wages and salaries
Social security costs
Redundancy costs
Cost of employee share schemes (Note 27)
Private healthcare costs
Pension costs – defined contribution plans (Note 23)
Total
In addition, redundancy costs of £nil (2016: £0.3 million) have been included within exceptional costs.
The monthly average number of persons (including Executive Directors) employed by the Group during the year was:
Continuing operations
Workwear
HORECA
All other segments
Total
2017
£m
112.3
8.8
0.2
1.1
0.4
2.0
124.8
2017
2,185
2,918
16
5,119
Directors’ emoluments
5
Detailed disclosures that form part of these financial statements are given in the Board Report on Remuneration on pages 37 to 44.
6
Exceptional items
Costs in relation to business acquisition activity
Pension costs
Profit on disposal of freehold property
Total exceptional items
2017
£m
(0.5)
–
–
(0.5)
2016
£m
99.2
6.8
0.1
1.0
0.4
1.8
109.3
2016
2,107
2,267
16
4,390
2016
£m
(1.2)
(0.3)
0.5
(1.0)
Current year exceptional items
Costs in relation to business acquisition activity
During the year, professional fees of £0.3 million were paid relating to the acquisitions of Clayfull Limited, which trades as PLS, and StarCounty Textile
Services Limited. In addition, costs of £0.2 million were incurred as part of the integration of recent acquisitions. Further information relating to the
acquisitions is provided in note 31.
Prior year exceptional items
Costs in relation to business acquisition activity
During the prior year, professional fees of £0.6 million and Stamp Duty of £0.3 million 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 £0.3 million were
incurred as part of the integration of recent acquisitions.
Pension costs
During the prior year, professional fees of £0.3 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 Workwear site in Leeds that was closed in 2015 was disposed of during the prior year for net proceeds of £0.5 million. The carrying value
was previously written down to £nil in 2014.
S
S
T
T
R
R
A
A
T
T
E
E
G
G
I
I
C
C
R
R
E
E
P
P
O
O
R
R
T
T
C
C
O
O
R
R
P
P
O
O
R
R
A
A
T
T
E
E
G
G
O
O
V
V
E
E
R
R
N
N
A
A
N
N
C
C
E
E
I
I
I
I
G
G
R
R
O
O
U
U
P
P
F
F
N
N
A
A
N
N
C
C
A
A
L
L
S
S
T
T
A
A
T
T
E
E
M
M
E
E
N
N
T
T
S
S
C
C
O
O
M
M
P
P
A
A
N
N
Y
Y
F
F
N
N
A
A
N
N
C
C
A
A
L
L
I
I
I
I
S
S
T
T
A
A
T
T
E
E
M
M
E
E
N
N
T
T
S
S
S
S
H
H
A
A
R
R
E
E
H
H
O
O
L
L
D
D
E
E
R
R
I
I
N
N
F
F
O
O
R
R
M
M
A
A
T
T
O
O
N
N
I
I
170435 Johnson Service Group Annual Report Pt4_170435 Johnson Service Group Annual Report Pt4 02/03/2018 21:01 Page 70
70 Johnson Service Group PLC Annual Report and Accounts 2017
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
7
Total finance cost
Continuing operations
Finance cost:
– Interest payable on bank loans and overdrafts
– Amortisation of bank facility fees
– Interest payable on obligations under finance lease agreements
Total finance costs before notional interest on post-employment benefit obligations
Notional interest on post-employment benefit obligations:
Total finance cost
8
Adjusted profit before and after taxation
Continuing operations
Profit before taxation
Amortisation of intangible assets (excluding software amortisation)
Profit on disposal of freehold property
Costs in relation to business acquisition activity
Pension costs
Adjusted profit before taxation
Taxation on adjusted profit
Adjusted profit after taxation
9
Taxation charge
Continuing operations
Current tax
UK corporation tax charge for the year
Adjustment in relation to previous years
Current tax charge for the year
Deferred tax
Origination and reversal of temporary differences
Changes in tax rate
Adjustment in relation to previous years
Deferred tax credit for the year
Total charge for taxation included in the Income Statement for continuing operations
2017
£m
(2.5)
(0.3)
(0.4)
(3.2)
(0.4)
(3.6)
2017
£m
31.2
8.0
–
0.5
–
39.7
(7.6)
32.1
2017
£m
7.8
(0.9)
6.9
(1.4)
(0.3)
0.6
(1.1)
5.8
The taxation charge for the year is lower (2016: lower) than the effective rate of Corporation Tax in the UK of 19.25% (2016: 20.00%). The
differences are explained below:
Profit before taxation from continuing operations
Profit before taxation multiplied by the effective rate of Corporation Tax in the UK
Factors affecting taxation charge for the year:
Tax effect of expenses not deductible for tax purposes
Changes in tax rate
Adjustments in relation to previous years
Total charge for taxation included in the Income Statement for continuing operations
2017
£m
31.2
6.0
0.4
(0.3)
(0.3)
5.8
2016
£m
(2.5)
(0.3)
(0.5)
(3.3)
(0.6)
(3.9)
2016
£m
25.9
6.9
(0.5)
1.2
0.3
33.8
(6.7)
27.1
2016
£m
7.3
(0.1)
7.2
(1.8)
(0.3)
(0.1)
(2.2)
5.0
2016
£m
25.9
5.2
0.3
(0.3)
(0.2)
5.0
170435 Johnson Service Group Annual Report Pt4_170435 Johnson Service Group Annual Report Pt4 02/03/2018 21:01 Page 71
71 Johnson Service Group PLC Annual Report and Accounts 2017
Annual Report and Accounts 2017 Johnson Service Group PLC 71
Annual Report and Accounts 2017 Johnson Service Group PLC 71
Taxation charge continued
9
Taxation in relation to amortisation of intangible assets (excluding software amortisation) has reduced the charge for taxation on continuing
operations by £1.7 million (2016: £1.5 million reduction). Taxation in relation to exceptional items in the current year has reduced the charge for
taxation on continuing operations by £0.1 million (2016: £0.2 million reduction).
The taxation charge for the year is based on the effective rate of UK Corporation Tax for the year of 19.25% (2016: 20.00%).
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 18.0% being used to measure all deferred tax balances as at 31 December 2017 (2016: 18.5%). The impact of the change in tax rates to
18.0% has been a £0.3 million credit in the Income Statement and a £0.1 million charge recognised within other comprehensive income.
During the year, a £0.7 million charge relating to deferred taxation (2016: £0.5 million credit) has been recognised in other comprehensive income.
During the year, a £0.2 million credit relating to current taxation (2016: £0.2 million credit) and a credit of £nil relating to deferred taxation (2016:
£nil) have been recognised directly in Shareholders’ equity.
10
Dividends
Dividend per share
Final dividend proposed
Interim dividend proposed and paid
Final dividend proposed and paid
Shareholders’ funds committed
Final dividend proposed
Interim dividend proposed and paid
Final dividend proposed and paid
2017
1.90p
0.90p
–
2017
£m
7.0
3.3
–
2016
–
0.80p
1.70p
2016
£m
–
2.9
6.2
The Directors propose the payment of a final dividend in respect of the year ended 31 December 2017 of 1.90 pence per share. This will utilise
Shareholders’ funds of £7.0 million and will be paid, subject to Shareholder approval, on 11 May 2018 to Shareholders on the register of members on
13 April 2018. 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 31 December 2017 in respect of this proposed dividend.
S
S
T
T
R
R
A
A
T
T
E
E
G
G
I
I
C
C
R
R
E
E
P
P
O
O
R
R
T
T
C
C
O
O
R
R
P
P
O
O
R
R
A
A
T
T
E
E
G
G
O
O
V
V
E
E
R
R
N
N
A
A
N
N
C
C
E
E
I
I
I
I
G
G
R
R
O
O
U
U
P
P
F
F
N
N
A
A
N
N
C
C
A
A
L
L
S
S
T
T
A
A
T
T
E
E
M
M
E
E
N
N
T
T
S
S
C
C
O
O
M
M
P
P
A
A
N
N
Y
Y
F
F
N
N
A
A
N
N
C
C
A
A
L
L
I
I
I
I
S
S
T
T
A
A
T
T
E
E
M
M
E
E
N
N
T
T
S
S
S
S
H
H
A
A
R
R
E
E
H
H
O
O
L
L
D
D
E
E
R
R
I
I
N
N
F
F
O
O
R
R
M
M
A
A
T
T
O
O
N
N
I
I
170435 Johnson Service Group Annual Report Pt4_170435 Johnson Service Group Annual Report Pt4 02/03/2018 21:01 Page 72
72 Johnson Service Group PLC Annual Report and Accounts 2017
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
11
Earnings per share
Profit for the financial year from continuing operations attributable to Shareholders
Profit/(loss) for the financial year from discontinued operations attributable to Shareholders
Amortisation of intangible assets from continuing operations (net of taxation)
Impairment of assets held for resale
Exceptional costs from continuing operations (net of taxation)
Exceptional costs from discontinued operations (net of taxation)
Adjusted profit attributable to Shareholders relating to continuing operations
Adjusted profit attributable to Shareholders relating to discontinued operations
Adjusted profit attributable to Shareholders
Weighted average number of Ordinary shares
Dilutive potential Ordinary shares
Diluted number of Ordinary shares
Basic earnings per share
From continuing operations
From discontinued operations
From continuing and discontinued operations
Adjustments for amortisation of intangible assets (continuing operations)
Impairment of assets held for resale (discontinued operations)
Adjustment for exceptional items (continuing operations)
Adjustment for exceptional items (discontinued operations)
Adjusted basic earnings per share (continuing operations)
Adjusted basic earnings per share (discontinued operations)
Adjusted basic earnings per share from continuing and discontinued operations
Diluted earnings per share
From continuing operations
From discontinued operations
From continuing and discontinued operations
Adjustments for amortisation of intangible assets (continuing operations)
Impairment of assets held for resale (discontinued operations
Adjustment for exceptional items (continuing operations)
Adjustment for exceptional items (discontinued operations)
Adjusted diluted earnings per share (continuing operations)
Adjusted diluted earnings per share (discontinued operations)
Adjusted diluted earnings per share from continuing and discontinued operations
2017
£m
25.4
0.3
6.3
–
0.4
–
32.1
0.3
32.4
2016
£m
20.9
(0.3)
5.4
2.0
0.8
(0.3)
27.1
1.4
28.5
366,167,837
2,798,518
368,966,355
352,481,294
4,421,297
356,902,591
6.9p
0.1p
7.0p
1.7p
–
0.1p
(0.1p)
8.7p
–
8.7p
6.9p
0.1p
7.0p
1.7p
–
0.1p
(0.1p)
8.7p
–
8.7p
6.0p
(0.1p)
5.9p
1.5p
0.6p
0.2p
(0.1p)
7.7p
0.4p
8.1p
5.9p
(0.1p)
5.8p
1.5p
0.6p
0.2p
(0.1p)
7.6p
0.4p
8.0p
Basic earnings per share is calculated using the weighted average number of Ordinary shares in issue during the year, 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. Options are dilutive under the
SAYE Scheme where the exercise price together with the future IFRS 2 charge is less than the average market price of the Company’s Ordinary
shares during the year. Options under the LTIP schemes, as defined by IFRS 2, are contingently issueable shares and are therefore only included
within the calculation of diluted EPS if the performance conditions, as set out in the Board report on remuneration, are satisfied.
Potentially dilutive 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. For the years ended 31 December 2017 and 31 December 2016, potentially dilutive
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.
170435 Johnson Service Group Annual Report Pt4_170435 Johnson Service Group Annual Report Pt4 02/03/2018 21:01 Page 73
Annual Report and Accounts 2017 Johnson Service Group PLC 73
2017
£m
115.6
4.7
–
120.3
–
–
–
115.6
120.3
2016
£m
95.1
31.2
(10.7)
115.6
1.6
(1.6)
–
93.5
115.6
12
Goodwill
Cost
Brought forward
Business combinations (see note 31)
Transferred to assets classified as held for sale (see note 32)
Carried forward
Accumulated impairment losses
Brought forward
Transferred to assets classified as held for sale (see note 32)
Carried forward
Carrying amount
Opening
Closing
In accordance with International Financial Reporting Standards, goodwill is not amortised, but instead is tested annually for impairment and carried at
cost less accumulated impairment losses.
Impairment tests for goodwill
The allocation of goodwill to Cash Generating Units (CGUs) is as follows:
Apparelmaster
Workwear
Stalbridge*
London Linen
Bourne
Afonwen**
HORECA
Total
2017
£m
41.7
41.7
5.0
35.4
12.5
25.7
78.6
2016
£m
41.7
41.7
3.9
35.4
12.5
22.1
73.9
120.3
115.6
* The increase during the year relates to the acquisition of StarCounty Textile Services Limited which has been included within the Stalbridge CGU.
** The increase during the year relates to the acquisition of Clayfull Limited (PLS) which has been included within the Afonwen CGU.
The recoverable amount of a CGU is primarily determined based on value-in-use calculations. These calculations use pre-tax cash flow projections
based on financial budgets, covering three years, which are approved by the Board. Income and costs within the budget are derived on a detailed,
‘bottom up’ basis – all income streams and cost lines are considered and appropriate growth, or decline, rates are assumed for each, all of which are
then reviewed, challenged and stress tested, firstly by senior management and ultimately by the Board. Income and cost growth forecasts are risk
adjusted to reflect specific risks facing each CGU and take into account the markets in which they operate. Cash flows beyond the budgeted period
are extrapolated using the estimated growth rate stated below into perpetuity. The growth rate does not exceed the long-term average growth rate for
the markets in which the CGU’s operate. Further, other than as included in the financial budgets, it is assumed that there are no material adverse
changes in legislation that would affect the forecast cash flows.
The pre-tax discount rate used within the recoverable amount calculations was 5.62% (2016: 5.95%) and is based upon the weighted average cost
of capital reflecting specific principal risks and uncertainties. The discount rate takes into account, amongst other things, the risk free rate of return
(derived from a 20 year government bond price), the market risk premium and beta factor reflecting the average Beta for the Group and comparator
companies which are used in deriving the cost of equity.
The same discount rate has been used for each CGU as the principal risks and uncertainties associated with the Group, as highlighted on pages 18
to 21, would also impact each CGU in a similar manner. The Board acknowledge that there are additional factors that could impact the risk profile of
each CGU. These additional factors were considered by way of sensitivity analysis performed as part of the annual impairment tests. The level of
impairment recognised is predominantly dependent upon judgements used in arriving at future growth rates and the discount rate applied to cash
flow projections. Key drivers to future growth rates are dependent on the Group’s ability to maintain and grow income streams whilst effectively
managing operating costs. The level of headroom may change if different growth rate assumptions or a different pre-tax discount rate were used in
the cash flow projections. Where the value-in-use calculations suggest an impairment, the Board would consider alternative use values prior to
realising any impairment, being fair value less costs to dispose.
S
S
T
T
R
R
A
A
T
T
E
E
G
G
I
I
C
C
R
R
E
E
P
P
O
O
R
R
T
T
C
C
O
O
R
R
P
P
O
O
R
R
A
A
T
T
E
E
G
G
O
O
V
V
E
E
R
R
N
N
A
A
N
N
C
C
E
E
I
I
G
R
O
U
P
F
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
C
C
O
O
M
M
P
P
A
A
N
N
Y
Y
F
F
N
N
A
A
N
N
C
C
A
A
L
L
I
I
I
I
S
S
T
T
A
A
T
T
E
E
M
M
E
E
N
N
T
T
S
S
S
S
H
H
A
A
R
R
E
E
H
H
O
O
L
L
D
D
E
E
R
R
I
I
N
N
F
F
O
O
R
R
M
M
A
A
T
T
O
O
N
N
I
I
170435 Johnson Service Group Annual Report Pt4_170435 Johnson Service Group Annual Report Pt4 02/03/2018 21:01 Page 74
74 Johnson Service Group PLC Annual Report and Accounts 2017
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
Goodwill continued
12
The key assumptions used for value-in-use calculations are as follows:
Annual growth rate (after budget period)
Risk free rate of return
Market risk premium
Beta Factor
Cost of debt
2017
1.87%
1.87%
6.25%
0.66
3.62%
2016
2.10%
2.10%
6.25%
0.70
3.85%
Having completed the 2017 impairment review, no impairment has been recognised in relation to the CGUs (2016: no impairment). Sensitivity analysis
has been performed in assessing the recoverable amounts of goodwill. There are no changes to the key assumptions of growth rate or discount rate
that are considered by the Directors to be reasonably possible, which give rise to an impairment of goodwill relating to the CGUs.
13
Intangible assets
Cost
At 31 December 2015
Business combinations (see note 31)
Transferred to assets classified as held for sale (see note 32)
At 31 December 2016
Business combinations (see note 31)
At 31 December 2017
Accumulated amortisation
At 31 December 2015
Charged during the year
Transferred to assets classified as held for sale (see note 32)
At 31 December 2016
Charged during the year
At 31 December 2017
Carrying amount
At 31 December 2015
At 31 December 2016
At 31 December 2017
Capitalised Software
£m
Other Intangible Assets
£m
1.2
–
(0.5)
0.7
–
0.7
0.6
0.2
(0.4)
0.4
0.2
0.6
0.6
0.3
0.1
49.3
18.5
–
67.8
3.8
71.6
13.3
6.9
–
20.2
8.0
28.2
36.0
47.6
43.4
Total
£m
50.5
18.5
(0.5)
68.5
3.8
72.3
13.9
7.1
(0.4)
20.6
8.2
28.8
36.6
47.9
43.5
Amortisation of capitalised software is included within administrative expenses in the Income Statement in determining operating profit before
exceptional items. Amortisation of other intangible assets is shown separately on the face of the Income Statement.
Other intangible assets comprise of customer contracts and relationships arising from business combinations. For assets resulting from a business
combination, fair value is calculated based upon historical and prospective information and financial data specific to each business combination, with
an appropriate discount factor applied based upon the weighted average cost of capital for the Group.
Other intangible assets have a finite useful life and are carried at cost less accumulated amortisation. Amortisation of other intangible assets is
calculated using the straight-line method to allocate the cost of the assets over their estimated useful lives (four to ten years). The longest estimated
useful life remaining at 31 December 2017 is seven years.
170435 Johnson Service Group Annual Report Pt4_170435 Johnson Service Group Annual Report Pt4 02/03/2018 21:01 Page 75
75 Johnson Service Group PLC Annual Report and Accounts 2017
Annual Report and Accounts 2017 Johnson Service Group PLC 75
14
Property, plant and equipment
Cost
At 31 December 2015
Business combinations (see note 31)
Additions
Disposals
Transferred to assets classified as held for sale (see note 32)
At 31 December 2016
Business combinations (see note 31)
Additions
Disposals
At 31 December 2017
Accumulated depreciation and impairment
At 31 December 2015
Charged during the year
Eliminated on disposals
Transferred to assets classified as held for sale (see note 32)
At 31 December 2016
Charged during the year
Eliminated on disposals
At 31 December 2017
Carrying amount
At 31 December 2015
At 31 December 2016
At 31 December 2017
Properties
Freehold
£m
Long
Leasehold
£m
Short
Leasehold
£m
14.7
5.3
0.3
–
(0.5)
19.8
2.2
0.3
–
22.3
4.9
0.2
–
(0.1)
5.0
0.3
–
5.3
9.8
14.8
17.0
4.7
1.2
0.3
–
–
6.2
–
–
–
6.2
1.6
0.1
–
–
1.7
0.1
–
1.8
3.1
4.5
4.4
7.8
–
0.1
–
(0.4)
7.5
0.1
0.7
–
8.3
2.5
0.5
–
(0.3)
2.7
0.5
–
3.2
5.3
4.8
5.1
Plant
and
Equipment
£m
99.8
18.5
14.9
(3.6)
(21.1)
108.5
2.6
14.3
(4.5)
120.9
59.8
11.3
(3.0)
(17.2)
50.9
11.6
(4.4)
58.1
40.0
57.6
62.8
The value of assets under construction at 31 December 2017 was £3.0 million (2016: £5.5 million).
Depreciation charges are recognised in cost of sales and administrative expenses depending on the assets to which the depreciation relates.
The net book value of plant and equipment held under finance leases is as follows:
Plant and equipment
2017
£m
16.7
Total
£m
127.0
25.0
15.6
(3.6)
(22.0)
142.0
4.9
15.3
(4.5)
157.7
68.8
12.1
(3.0)
(17.6)
60.3
12.5
(4.4)
68.4
58.2
81.7
89.3
2016
£m
18.3
S
S
T
T
R
R
A
A
T
T
E
E
G
G
I
I
C
C
R
R
E
E
P
P
O
O
R
R
T
T
C
C
O
O
R
R
P
P
O
O
R
R
A
A
T
T
E
E
G
G
O
O
V
V
E
E
R
R
N
N
A
A
N
N
C
C
E
E
I
I
G
R
O
U
P
F
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
C
C
O
O
M
M
P
P
A
A
N
N
Y
Y
F
F
N
N
A
A
N
N
C
C
A
A
L
L
I
I
I
I
S
S
T
T
A
A
T
T
E
E
M
M
E
E
N
N
T
T
S
S
S
S
H
H
A
A
R
R
E
E
H
H
O
O
L
L
D
D
E
E
R
R
I
I
N
N
F
F
O
O
R
R
M
M
A
A
T
T
O
O
N
N
I
I
170435 Johnson Service Group Annual Report Pt4_170435 Johnson Service Group Annual Report Pt4 02/03/2018 21:01 Page 76
76 Johnson Service Group PLC Annual Report and Accounts 2017
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
15
Textile rental items
Cost
Brought forward
Additions
Business combinations (see note 31)
Disposals
Special charges
Carried forward
Accumulated depreciation
Brought forward
Charged during the year
Disposals
Special charges
Carried forward
Carrying amount
Opening
Closing
Depreciation charges are recognised in cost of sales within the Income Statement.
16
Inventories
New textile rental items
Goods for resale
Raw materials and stores
The movement in the carrying value of inventories during the year is as follows:
Opening inventories
Purchases
Business combinations (see note 31)
Amounts transferred to textile rental items
Amounts transferred to cost of sales
Amounts transferred to assets classified as held for sale (see note 32)
The amounts above are net of an inventory provision of £0.6 million (2016: £0.6 million).
2017
£m
82.5
43.7
0.6
(19.5)
(4.2)
103.1
38.4
36.3
(19.5)
(2.1)
53.1
44.1
50.0
2017
£m
1.7
0.3
0.9
2.9
2017
£m
2.2
54.7
–
(43.7)
(10.3)
–
2.9
2016
£m
65.4
35.4
7.3
(20.2)
(5.4)
82.5
28.9
32.4
(20.2)
(2.7)
38.4
36.5
44.1
2016
£m
1.2
0.1
0.9
2.2
2016
£m
2.7
46.4
0.3
(35.4)
(11.4)
(0.4)
2.2
170435 Johnson Service Group Annual Report Pt4_170435 Johnson Service Group Annual Report Pt4 02/03/2018 21:01 Page 77
Annual Report and Accounts 2017 Johnson Service Group PLC 77
17
Trade and other receivables
Amounts falling due within one year:
Trade receivables
Less: provision for impairment of trade receivables
Trade receivables – net
Other receivables
Prepayments
Accrued income
Amounts falling due after more than one year:
Other receivables
2017
£m
43.5
(1.8)
41.7
1.3
2.5
1.7
47.2
0.3
47.5
The ageing of trade receivables, other receivables and accrued income is analysed below:
Trade receivables, other receivables and accrued income
– Not yet due and up to 3 months overdue
– 3 to 6 months past due
– 6 to 12 months past due
– Over 12 months past due
Gross
£m
46.3
0.2
0.2
0.1
46.8
Provision
£m
(1.3)
(0.2)
(0.2)
(0.1)
(1.8)
2017
Net
£m
45.0
–
–
–
45.0
Gross
£m
43.0
0.4
0.1
–
43.5
Provision
£m
(1.3)
(0.4)
(0.1)
–
(1.8)
2016
£m
36.3
(1.8)
34.5
5.6
1.9
1.3
43.3
0.3
43.6
2016
Net
£m
41.7
–
–
–
41.7
Trade and other receivables which are less than three months past due are not considered impaired unless specific information indicates otherwise.
Trade and other receivables greater than three months past due are considered for recoverability, and where appropriate, a provision against bad debt
is recognised.
All trade and other receivable balances at the balance sheet date are denominated in Sterling (2016: Sterling), and are held at amortised cost. Given
the short term nature of current receivables there is deemed to be no difference between this and fair value. The difference between the book value
and fair value of non-current trade and other receivables is deemed to be not material.
There is limited concentration of credit risk with respect to trade receivables due to the diverse and unrelated nature of the Group’s customers.
Accordingly, the Directors believe that no further credit provision is required in excess of the provision for impairment of receivables.
The movement in the provision for trade and other receivables is analysed below:
S
S
T
T
R
R
A
A
T
T
E
E
G
G
I
I
C
C
R
R
E
E
P
P
O
O
R
R
T
T
C
C
O
O
R
R
P
P
O
O
R
R
A
A
T
T
E
E
G
G
O
O
V
V
E
E
R
R
N
N
A
A
N
N
C
C
E
E
I
I
G
R
O
U
P
F
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
C
C
O
O
M
M
P
P
A
A
N
N
Y
Y
F
F
N
N
A
A
N
N
C
C
A
A
L
L
I
I
I
I
At 1 January
Provisions for receivables impairment
Provisions acquired
Amounts unused reversed
Receivables written off during the year as uncollectable
Transferred to assets classified as held for sale
At 31 December
2017
£m
(1.8)
(1.1)
–
0.2
0.9
–
(1.8)
The creation and release of the provision for impaired receivables has been included in administrative expenses in the Income Statement when
related to continuing activities. Amounts charged to the allowance account are generally written off when there is no expectation of recovering
additional cash. The figures in the table above reflect both continuing and discontinued operations.
2016
£m
(1.7)
(1.2)
(0.4)
0.4
1.0
0.1
(1.8)
S
S
T
T
A
A
T
T
E
E
M
M
E
E
N
N
T
T
S
S
S
S
H
H
A
A
R
R
E
E
H
H
O
O
L
L
D
D
E
E
R
R
I
I
N
N
F
F
O
O
R
R
M
M
A
A
T
T
O
O
N
N
I
I
The maximum exposure to credit risk at the reporting date is the fair value of each class of receivable detailed within this note. The Group does not
hold any collateral as security.
170435 Johnson Service Group Annual Report Pt4_170435 Johnson Service Group Annual Report Pt4 02/03/2018 21:01 Page 78
78 Johnson Service Group PLC Annual Report and Accounts 2017
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
18
Trade and other payables
Trade payables
Other payables
Other taxation and social security liabilities
Deferred income
Accruals
2017
£m
23.9
3.5
8.9
1.4
27.6
65.3
2016
£m
21.4
3.1
8.7
2.0
25.4
60.6
All trade and other payables balances at the balance sheet date are denominated in Sterling (2016: Sterling), and are held at amortised cost. Given
the short term nature there is deemed to be no difference between this and fair value.
19
Trade and other payables (non-current)
Trade Payables
Deferred consideration
Deferred income
Accruals
2017
£m
0.1
0.8
1.6
0.6
3.1
The difference between the book value and fair value of non-current trade and other payables is deemed to be not material.
20
Borrowings
Current
Overdraft
Bank loans
Obligations under finance lease agreements
Non-current
Bank loans
Obligations under finance lease agreements
The maturity of non-current bank loans is as follows:
– Between one and two years
– Between two and five years
– Unamortised issue costs of bank loans
2017
£m
9.0
1.7
3.8
14.5
75.9
6.2
82.1
96.6
–
76.0
(0.1)
75.9
2016
£m
0.2
0.3
0.6
1.2
2.3
2016
£m
5.2
9.8
4.9
19.9
72.5
9.5
82.0
101.9
–
73.0
(0.5)
72.5
At 31 December 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. This facility comprised a £120.0 million rolling credit facility (including an
overdraft) which runs to April 2020. The available facilities at 31 December 2017 were £120.0 million (2016: available facility of £150.0 million).
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%.
The Group has two overdraft facilities for £5.0 million and £3.0 million with two of its principal bankers (2016: £5.0 million and £3.0 million).
170435 Johnson Service Group Annual Report Pt4_170435 Johnson Service Group Annual Report Pt4 02/03/2018 21:01 Page 79
Annual Report and Accounts 2017 Johnson Service Group PLC 79
Borrowings continued
20
As at 31 December 2017, £50.0 million of borrowings were subject to hedging arrangements which have the effect of replacing LIBOR with fixed
rates as follows:
➔ for £15.0 million of borrowings, LIBOR is replaced with 1.4725% from 8 January 2016 to 8 January 2019;
➔ for £15.0 million of borrowings, LIBOR is replaced with 1.665% from 8 January 2016 to 8 January 2020;
➔ for £10.0 million of borrowings, LIBOR is replaced with 0.49% from 30 June 2016 to 30 June 2018; and
➔ for £10.0 million of borrowings, LIBOR is replaced with 0.5525% from 30 June 2016 to 30 June 2019.
Amounts drawn under the revolving credit facility have been classified as either current or non-current depending upon when the loan is expected to
be repaid.
The secured bank loans are stated net of unamortised issue costs of £0.4 million (2016: £0.7 million). Details of the security are provided in note 25
to the Consolidated Financial Statements.
Finance leases
Obligations under finance lease agreements are as follows:
Not more than one year
Minimum lease payments
Interest element
Present value of minimum lease payments
Between one and five years
Minimum lease payments
Interest element
Present value of minimum lease payments
More than five years
Minimum lease payments
Interest element
Present value of minimum lease payments
2017
£m
4.1
(0.3)
3.8
6.5
(0.3)
6.2
–
–
–
2016
£m
5.3
(0.4)
4.9
9.6
(0.5)
9.1
0.4
–
0.4
Finance lease obligations are secured on the assets to which they relate.
Deferred taxation
21
Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities
and when the deferred income taxes relate to the same fiscal authority. The offset amounts are as follows:
Recognised deferred income tax assets and liabilities
Depreciation in excess of/(less than) capital allowances
Employee share schemes
Post-employment benefit obligations
Derivative financial liabilities
Other short term timing differences
Separately identifiable intangible assets
Deferred Income
Tax Assets
––––––––––––––––––––––––––––––––––––––––––
2016
£m
2017
£m
Deferred Income
Tax Liabilities
–––––––––––––––––––––––––––––––––––––––––
2016
£m
2017
£m
–
0.4
2.2
–
0.3
–
2.9
–
0.3
3.4
0.1
0.4
–
4.2
(1.9)
–
–
–
–
(7.6)
(9.5)
(1.5)
–
–
–
–
(8.5)
(10.0)
The deferred income tax assets disclosed above are deemed to be recoverable. In addition, deferred tax assets of £0.8 million were included within
Assets classified as held for sale in the prior year (Note 32).
Previously the Group had tax losses of approximately £23.7 million that were acquired as part of the acquisition of Sketchley Limited in May 2004.
No deferred tax asset was recognised within these financial statements in respect of these unutilised losses due to the uncertainty of timing of
utilisation. The benefit of these tax losses were disposed of with the Drycleaning business on 4 January 2017.
S
S
T
T
R
R
A
A
T
T
E
E
G
G
I
I
C
C
R
R
E
E
P
P
O
O
R
R
T
T
C
C
O
O
R
R
P
P
O
O
R
R
A
A
T
T
E
E
G
G
O
O
V
V
E
E
R
R
N
N
A
A
N
N
C
C
E
E
I
I
G
R
O
U
P
F
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
C
C
O
O
M
M
P
P
A
A
N
N
Y
Y
F
F
N
N
A
A
N
N
C
C
A
A
L
L
I
I
I
I
S
S
T
T
A
A
T
T
E
E
M
M
E
E
N
N
T
T
S
S
S
S
H
H
A
A
R
R
E
E
H
H
O
O
L
L
D
D
E
E
R
R
I
I
N
N
F
F
O
O
R
R
M
M
A
A
T
T
O
O
N
N
I
I
170435 Johnson Service Group Annual Report Pt4_170435 Johnson Service Group Annual Report Pt4 02/03/2018 21:01 Page 80
80 Johnson Service Group PLC Annual Report and Accounts 2017
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
Deferred taxation continued
21
The following provides a reconciliation of the movement in each of the deferred income tax assets and liabilities:
At 31 December 2015
(Charge)/credit to income
Deferred income tax
liabilities acquired
Credit to other
comprehensive income
Transfer to assets classified as held for sale
At 31 December 2016
Credit/(charge) to income
Deferred income tax
liabilities acquired
Charge to other
comprehensive income
At 31 December 2017
Depreciation
in Excess of/
(less than)
Capital
Allowances
£m
Employee
Share
Schemes
£m
Post-
employment
Benefit
Obligations
£m
Derivative
Financial
Instruments
£m
Other
Short Term
Timing
Differences
£m
Intangible
Assets
£m
0.1
(0.2)
(0.8)
–
(0.6)
(1.5)
0.1
(0.5)
–
(1.9)
0.2
0.2
–
–
(0.1)
0.3
0.1
–
–
0.4
3.0
(0.2)
–
0.6
–
3.4
(0.5)
–
(0.7)
2.2
0.2
(0.1)
–
–
–
0.1
(0.1)
–
–
–
(0.3)
0.8
–
–
(0.1)
0.4
(0.1)
–
–
0.3
(6.5)
1.6
(3.6)
–
–
(8.5)
1.6
(0.7)
–
(7.6)
Total
£m
(3.3)
2.1
(4.4)
0.6
(0.8)
(5.8)
1.1
(1.2)
(0.7)
(6.6)
The deferred income tax charge to income in 2017 includes a charge of £nil in respect of discontinued activities (2016: charge of £0.1 million).
Changes to the UK corporation tax rates were announced on 8 July 2015. These changes were substantively enacted as part of Finance Bill 2015
on 26 October 2015 and include reductions to the main rate to reduce the rate to 19% from 1 April 2017 and to 18% from 1 April 2020. 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 18.0% being used to measure all deferred tax balances as at 31 December 2017 (2016: 18.5%). The impact of the change in tax rates to
18.0% has been £0.3 million credit in the Income Statement and a £0.1 million credit within other comprehensive income.
The Group has estimated that £1.1 million of the Group’s net deferred income tax liability will be realised in the next 12 months. This is management’s
current best estimate and may not reflect the actual outcome in the next 12 months.
22
Provisions
At 31 December 2015
Additional provision in the year
Provision discount unwind
Transferred to Liabilities directly associated with assets
classified as held for sale (Note 32)
Released during the year
Utilised during the year
At 31 December 2016
Additional provision in the year
Released during the year
Utilised during the year
At 31 December 2017
Property
£m
11.8
0.2
0.1
(3.4)
(0.7)
(3.9)
4.1
–
(0.6)
(0.5)
3.0
Self
Insurance
£m
0.7
0.1
–
–
–
(0.1)
0.7
0.1
–
(0.1)
0.7
Total
£m
12.5
0.3
0.1
(3.4)
(0.7)
(4.0)
4.8
0.1
(0.6)
(0.6)
3.7
170435 Johnson Service Group Annual Report Pt4_170435 Johnson Service Group Annual Report Pt4 02/03/2018 21:01 Page 81
Annual Report and Accounts 2017 Johnson Service Group PLC 81
2017
£m
2.2
1.5
3.7
2016
£m
1.9
2.9
4.8
22
Provisions continued
Analysis of total provisions
Current
Non-current
Property
The property provision includes onerous leases, expected lease dilapidation costs and the estimated remediation costs of property where an
environmental problem has been identified and the costs to rectify can be reliably measured. The estimates and judgements used in determining the
value of provisioning are continually evaluated and are based on historical experience and other factors, including expectations of future events that
are believed to be reasonable under the circumstances. The majority of the property provision is expected to be utilised over a period of up to five
years.
Self insurance
The self insurance provision is in respect of the estimated payments due to existing claimants under the self funded incapacity scheme over a period
of 13 years. This scheme is now closed.
Post-employment benefit obligations
23
The Group operates pension schemes of both the funded defined benefit and the defined contribution type for a substantial number of employees. In
addition, the Group also operates an unfunded defined benefit private healthcare scheme for eligible retirees. The disclosures below are in respect of
all of the Group schemes.
Pensions – defined contribution
The JSG Pension Plan is a defined contribution scheme. The total cost of employer contributions for the year for continuing operations was £2.0
million (2016: £1.8 million).
Pensions – defined benefit
The Group operates a defined benefit pension scheme, the Johnson Group Defined Benefit Scheme (‘JGDBS’). The JGDBS was closed to future
accrual on 31 December 2014.
A full actuarial valuation of the JGDBS was carried out at 30 September 2016 and has been updated to 31 December 2017 by an independent
qualified actuary. The updated actuarial valuation at 31 December 2017 showed a deficit of £10.9 million (2016: £17.0 million). During the year, no
employer contributions were made (2016: £nil).
Deficit recovery payments of £3.4 million (2016: £1.9 million) were made to the Scheme during the year. Further deficit recovery payments of
£1.9 million are expected to be made in 2018.
Actuarial assumptions
Considerations when calculating the IAS 19 liability
IAS19 sets out prescribed (qualitative) conditions for selecting the actuarial assumptions used to calculate the pension liabilities and pension costs. A
key assumption is the discount rate which is used to determine the value of pension liabilities at the balance sheet date. The selection of the price
inflation assumptions (both RPI and CPI) is also critical as these are relevant for the pre-retirement revaluation and pension increases in payment
assumptions.
These assumptions are based on market yields at the balance sheet date, and may not be borne out in practice due to the long-term expected
duration of the Scheme. The weighted average duration of the defined benefit obligation is approximately 14 years (2016: 15 years). Within the
prescribed conditions however, assumptions must be mutually compatible and lead to the best estimate of the future cash flows in respect of pension
liabilities.
S
S
T
T
R
R
A
A
T
T
E
E
G
G
I
I
C
C
R
R
E
E
P
P
O
O
R
R
T
T
C
C
O
O
R
R
P
P
O
O
R
R
A
A
T
T
E
E
G
G
O
O
V
V
E
E
R
R
N
N
A
A
N
N
C
C
E
E
I
I
G
R
O
U
P
F
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
C
C
O
O
M
M
P
P
A
A
N
N
Y
Y
F
F
N
N
A
A
N
N
C
C
A
A
L
L
I
I
I
I
S
S
T
T
A
A
T
T
E
E
M
M
E
E
N
N
T
T
S
S
S
S
H
H
A
A
R
R
E
E
H
H
O
O
L
L
D
D
E
E
R
R
I
I
N
N
F
F
O
O
R
R
M
M
A
A
T
T
O
O
N
N
I
I
170435 Johnson Service Group Annual Report Pt4_170435 Johnson Service Group Annual Report Pt4 02/03/2018 21:01 Page 82
82 Johnson Service Group PLC Annual Report and Accounts 2017
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
23
Post-employment benefit obligations continued
A summary of relevant considerations is set out below:
Assumption for valuing pension liabilities
Comments on prescribed conditions
Discount rate (pre and post retirement)
Retail Price inflation (RPI)
Based on yields on “high quality” corporate bonds of appropriate duration and currency, or a
suitable proxy. Our approach is to value sample pensioner and non-pensioner cash flows with
different durations using a yield curve approach and to calculate the single equivalent discount
rate for each set of cash flows
Based on the yield differential between index-linked bonds and fixed-interest bonds of
appropriate duration and of a similar credit standing (for example, using spot yields derived from
the inflation yield curve published by the Bank of England) with the allowance for an inflation
premium to reflect market conditions
Consumer Price Inflation (CPI)
Based on the RPI assumption with an adjustment to reflect the historic and future long term
differences between the RPI and CPI indices
Pension increases
Compatible with the rate of price inflation above taking into account the effects of scheme
rules and valid expectations of discretionary increases based on best practice
Demographic assumptions
(e.g. rates of mortality and early retirement)
Compatible assumptions that lead to a best estimate of future cash flows
Assumptions used
Rate used to discount scheme liabilities
Retail price inflation (RPI)
Consumer price inflation (CPI)
Rate of increase of pensions in payment (5.0% RPI linked)
Rate of increase of pensions in payment (2.5% RPI linked)
Rate of increase of pensions in payment (2.5% CPI linked)
Rate of increase of pensions in deferment (JGDBS Scheme)
2017
2.50%
3.15%
1.95%
3.02%
2.07%
1.65%
1.95%
2016
2.70%
3.25%
2.05%
3.10%
2.09%
1.70%
2.05%
Life expectancy at age 60 for current male pensioners is assumed to be 26.8 years (2016: 26.6 years). Life expectancy at age 60 for male future
pensioners is assumed to be 27.2 years (2016: 27.3 years). “S2PXA 99%/93% males/females CMI 2016 with a 1.25% long term trend rate” has
been used to derive these mortality rates (2016: “S1NXA CMI 2015 with a 1.0% long term trend rate” used).
It is assumed that 100% of non-retired members of the JGDBS will commute 25% of their pension at retirement (2016: 100% of members will
commute 25% of pension).
It has been assumed that 50% (2016: 50%) of future pensioners at retirement will exchange their non-statutory pension increases at retirement for a
higher, but non-increasing pension.
Sensitivity of key assumptions
The table below gives an approximation of the impact on the IAS19 pension scheme liabilities to changes in assumptions and experience. Note that
all figures are before allowing for deferred tax.
Item
Increase/decrease discount rate by 0.1%
Increase/decrease price inflation assumption by 0.1%
1 year increase/decrease in life expectancy at age 60
Approximate increase/(decrease)
on Post-employment benefit obligation
(£3.0 million)/£3.0 million
£1.1 million/(£1.2 million)
£10.8 million/( £10.8 million)
The above sensitivities are applied to adjust the defined benefit obligations at the end of the reporting period. Whilst the analysis does not take
account of full distribution of cash flows expected under the scheme, it does provide an approximation of the sensitivity of the assumptions shown.
No changes have been made to the method and assumptions used in this analysis from those used in the previous period.
170435 Johnson Service Group Annual Report Pt4_170435 Johnson Service Group Annual Report Pt4 02/03/2018 21:01 Page 83
83 Johnson Service Group PLC Annual Report and Accounts 2017
Annual Report and Accounts 2017 Johnson Service Group PLC 83
Annual Report and Accounts 2017 Johnson Service Group PLC 83
23
Post-employment benefit obligations continued
Private healthcare
The Group operates an unfunded defined benefit private healthcare scheme for eligible retirees. At 31 December 2017, the deficit of the scheme was
£1.1 million (2016: £1.2 million). The Group accounted for a current service cost of £2,000 and a notional interest cost of £45,000 in the Income
Statement (2016: £2,000 and £45,000 respectively). Following the latest formal review, current service cost in 2018 is expected to be £nil with a
notional interest cost of £26,000.
The scheme is subject to a periodic independent actuarial review which assesses the cost of providing benefits for current and future eligible retirees.
The latest formal review was undertaken as at 31 December 2017.
The latest review was performed using the projected unit credit method, and a discount rate of 2.50%. The main long term actuarial assumptions
used in the review were that the retirement age of eligible employees will be 60 for females and males and the rate of increase in medical costs is to
be 5.5% throughout. There have been no material changes in circumstances since the last formal review.
An increase of 1% in the medical cost trend would increase the scheme liabilities by £0.1 million and the aggregate of the service cost and interest
cost by £2,000 per annum. A decrease of 1% in the medical cost trend would reduce the scheme liabilities by £0.1 million and the aggregate of the
service cost and interest cost by £2,000 per annum.
Post-employment benefit obligations disclosures
The amounts charged to the Income Statement are set out below:
Current service costs – charged to administrative expenses
Notional interest on post-employment benefit obligations
Total amounts charged to the Income Statement
2017
£m
–
0.4
0.4
2016
£m
–
0.6
0.6
Current service costs are charged or credited to the Income Statement in arriving at operating profit before amortisation and impairment of intangible
assets (excluding software amortisation) and exceptional items.
The interest income on scheme assets and the interest cost on scheme liabilities are included within total finance costs.
In addition, the following amounts have been recognised in the Statement of Comprehensive Income:
Return on scheme assets excluding interest income
Re-measurement losses arising from changes in demographic assumptions
Re-measurement losses arising from changes in financial assumptions
Experience gains on liabilities
Total amounts recognised in the Statement of Comprehensive Income
Amounts recognised in the Balance Sheet are as follows:
Present value of funded obligations
Fair value of scheme assets
Net defined benefit pension obligations
Post-retirement healthcare obligations
Net post-employment benefit obligations
2017
£m
9.8
(2.8)
(4.8)
1.0
3.2
2017
£m
(229.5)
218.6
(10.9)
(1.1)
(12.0)
2016
£m
31.4
–
(38.6)
3.7
(3.5)
2016
£m
(228.5)
211.5
(17.0)
(1.2)
(18.2)
S
S
T
T
R
R
A
A
T
T
E
E
G
G
I
I
C
C
R
R
E
E
P
P
O
O
R
R
T
T
C
C
O
O
R
R
P
P
O
O
R
R
A
A
T
T
E
E
G
G
O
O
V
V
E
E
R
R
N
N
A
A
N
N
C
C
E
E
I
I
I
I
G
G
R
R
O
O
U
U
P
P
F
F
N
N
A
A
N
N
C
C
A
A
L
L
S
S
T
T
A
A
T
T
E
E
M
M
E
E
N
N
T
T
S
S
C
C
O
O
M
M
P
P
A
A
N
N
Y
Y
F
F
N
N
A
A
N
N
C
C
A
A
L
L
I
I
I
I
S
S
T
T
A
A
T
T
E
E
M
M
E
E
N
N
T
T
S
S
S
S
H
H
A
A
R
R
E
E
H
H
O
O
L
L
D
D
E
E
R
R
I
I
N
N
F
F
O
O
R
R
M
M
A
A
T
T
O
O
N
N
I
I
170435 Johnson Service Group Annual Report Pt4_170435 Johnson Service Group Annual Report Pt4 02/03/2018 21:01 Page 84
84 Johnson Service Group PLC Annual Report and Accounts 2017
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
Post-employment benefit obligations continued
23
Movements in the fair value of scheme assets were as follows:
Fair value of scheme assets at beginning of the year
Interest income
Return on scheme assets (excluding interest income)
Deficit recovery payments
Benefits paid
Fair value of scheme assets at end of the year
Movements in the fair value of scheme liabilities were as follows:
Fair value of scheme liabilities at beginning of the year
Interest expense
Re-measurement losses from changes in demographic assumptions
Re-measurement losses from changes in financial assumptions
Experience gains on liabilities
Benefits paid
Fair value of scheme liabilities at the end of the year
Movements in post-employment benefit obligations were as follows:
Opening post-employment benefit obligation
Notional interest
Deficit recovery payments
Re-measurement and experience gains/(losses)
Closing post-employment benefit obligation
The major categories of scheme assets were as follows:
Equities
Bonds
Liability driven investments
Real return funds
Alternative return seeking assets
Cash and cash equivalents
Total market value of assets
Quoted
Market Price
Active Market
£m
No Quoted
Market Price
Active Market
£m
36.0
34.2
43.5
32.5
4.2
3.6
154.0
–
–
–
–
64.6
–
64.6
2017
£m
211.5
5.6
9.8
3.4
(11.7)
218.6
2017
£m
(229.7)
(6.0)
(2.8)
(4.8)
1.0
11.7
(230.6)
2017
£m
(18.2)
(0.4)
3.4
3.2
(12.0)
Quoted
Market Price
Active Market
£m
No Quoted
Market Price
Active Market
£m
71.2
42.1
25.7
26.2
4.5
12.5
–
–
–
–
29.3
–
29.3
2017
Total
Scheme
£m
36.0
34.2
43.5
32.5
68.8
3.6
218.6
182.2
2016
£m
192.4
7.0
31.4
1.9
(21.2)
211.5
2016
£m
(208.4)
(7.6)
–
(38.6)
3.7
21.2
(229.7)
2016
£m
(16.0)
(0.6)
1.9
(3.5)
(18.2)
2016
Total
Scheme
£m
71.2
42.1
25.7
26.2
33.8
12.5
211.5
The deficit recognised in respect of the JGDBS is influenced by both the measurement of plan liabilities and the valuation of plan assets. The Group,
in conjunction with the Trustee has tried to ensure an appropriate balance of investments has been made by the scheme to mitigate potential price
volatility in individual asset categories. The Group and Trustee regularly monitor the composition of plan assets and amend the composition
accordingly to try and match scheme assets with the liabilities they are intended to fund. However, any underperformance of scheme assets could
result in future increases in the deficit recognised on the JGDBS.
Scheme assets held with no quoted market price on active market are valued by the fund managers. The managers determine fair value of their
holdings based on several factors. They may use secondary market prices, internal valuation models or independent valuations. This process adopted
will vary by manager and asset class, although independent hired parties are typically used to verify and support the net asset value valuations.
The assets of the pension scheme include no (2016: none) shares in the Group.
The Liability driven investments (LDI) shown above comprise of nominal and real LDI funds, investing in leveraged gilts and swaps in pooled funds for
liability matching and liquidity funds investing in pooled cash funds. Under these arrangements, if interest rates fall, the value of the LDI investments
would be expected to rise, all else being equal, to help offset the expected increase in the present value placed on the schemes liabilities arising from
a fall in the discount rate (and vice versa).
170435 Johnson Service Group Annual Report Pt4_170435 Johnson Service Group Annual Report Pt4 02/03/2018 21:01 Page 85
Annual Report and Accounts 2017 Johnson Service Group PLC 85
Financial instruments
24
Policies and strategies
Details of the Group’s policies and strategies in relation to financial instruments are given within the Statement of Significant Accounting Policies.
IAS 32, Financial Instruments: Presentation, IAS 39, Financial Instruments: Recognition and Measurement and IFRS 7, Financial Instruments:
Disclosures, also require numerical disclosures in respect of financial assets and liabilities and these are set out below and in note 17 in relation to
Trade receivables. Financial assets and liabilities are stated at either amortised cost or fair value. Where stated at amortised cost, this is not materially
different to the fair value unless otherwise stated due to their short term nature.
Financial assets
Cash at bank and in hand
Sterling
US Dollars
At 31 December
Cash within assets classified as held for sale
Sterling
2017
£m
5.2
0.1
5.3
–
For interest purposes cash is offset against overdrafts through a pooling arrangement with each of the Group’s principal bankers. Surplus cash is
placed on Treasury Deposit with one or more of the Group’s principal bankers.
At the balance sheet date, cash was held with the following institutions:
Cash at bank and in hand
Royal Bank of Scotland
Lloyds Bank
Total cash and cash equivalents
Cash within assets classified as held for sale
Royal Bank of Scotland
Rating
A-2
A-2
A-2
2017
£m
3.4
1.9
5.3
–
2016
£m
2.8
0.1
2.9
0.8
2016
£m
2.6
0.3
2.9
0.8
The Group refers to Standard and Poor’s short-term issue credit ratings when determining with which financial institutions to deposit its surplus cash
balances. A short-term obligation rated ‘A-1’ is rated in the highest category by Standard & Poor’s. The obligor’s capacity to meet its financial
commitment on the obligation is strong. A short-term obligation rated ‘A-2’ is somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than obligations in higher rating categories. However, the obligor’s capacity to meet its financial commitment
on the obligation is satisfactory.
Cash balances held with the Group’s principal bankers are used for working capital purposes. The Directors do not consider deposits at these
institutions to be at risk.
Financial liabilities
Trade and other payables
Overdraft
Bank loans*
Finance leases
Provisions
Provisions included within liabilities directly
associated with assets held for sale
Derivative financial instruments
As per Balance Sheet
£m
Future Interest Cost
£m
2017
Total Cash Flows
£m
As per Balance Sheet
£m
Future Interest Cost
£m
2016
Total Cash Flows
£m
68.4
9.0
77.6
10.0
3.7
–
0.1
168.8
–
–
–
0.6
–
–
–
0.6
68.4
9.0
77.6
10.6
3.7
–
0.1
62.9
5.2
82.3
14.4
4.8
3.4
0.8
169.4
173.8
–
–
–
0.9
–
0.1
–
1.0
62.9
5.2
82.3
15.3
4.8
3.5
0.8
174.8
* IFRS 7 requires the contractual future interest cost of a financial liability to be included within the above table. As disclosed in note 20 of these
financial statements, all the bank loans are currently drawn under an RCF arrangement and as such there is no contractual future interest cost.
S
S
T
T
R
R
A
A
T
T
E
E
G
G
I
I
C
C
R
R
E
E
P
P
O
O
R
R
T
T
C
C
O
O
R
R
P
P
O
O
R
R
A
A
T
T
E
E
G
G
O
O
V
V
E
E
R
R
N
N
A
A
N
N
C
C
E
E
I
I
G
R
O
U
P
F
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
C
C
O
O
M
M
P
P
A
A
N
N
Y
Y
F
F
N
N
A
A
N
N
C
C
A
A
L
L
I
I
I
I
S
S
T
T
A
A
T
T
E
E
M
M
E
E
N
N
T
T
S
S
S
S
H
H
A
A
R
R
E
E
H
H
O
O
L
L
D
D
E
E
R
R
I
I
N
N
F
F
O
O
R
R
M
M
A
A
T
T
O
O
N
N
I
I
170435 Johnson Service Group Annual Report Pt4_170435 Johnson Service Group Annual Report Pt4 02/03/2018 21:01 Page 86
86 Johnson Service Group PLC Annual Report and Accounts 2017
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
Financial instruments continued
24
Interest paid in the year in relation to bank loans drawn down amounted to £2.4 million. Interest is payable at a rate of LIBOR prevailing at the time of
drawdown plus the applicable margin, which ranges from 1.25% and 2.25%.
Liquidity risk
The maturity of financial liabilities based on contracted cash flows is shown in the table below.
This table has been drawn up using the undiscounted cash flows of financial liabilities based on the earliest date on which the Group is obliged to pay.
The table includes both interest and principal cash flows. Floating rate interest payments have been calculated using the relevant interest rates
prevailing at the year end.
Trade
and other
payables
£m
65.3
1.6
0.6
0.9
68.4
60.6
1.3
0.4
0.6
62.9
Overdrafts
£m
9.0
–
–
–
9.0
5.2
–
–
–
5.2
Bank
Loans
£m
1.7
–
75.9
–
77.6
9.7
–
72.6
–
82.3
Provisions
within
liabilities assets
held for resale
£m
Provisions
£m
Derivative
Financial
Instruments
£m
2.2
0.4
0.4
0.7
3.7
1.9
1.0
1.2
0.7
4.8
–
–
–
–
–
1.3
0.5
1.1
0.6
3.5
0.1
–
–
–
0.1
0.3
0.4
0.1
–
0.8
Finance
Leases
£m
4.1
2.7
3.8
–
10.6
5.3
3.8
5.8
0.4
15.3
Fixed Rate
Financial
Liabilities
£m
60.0
64.4
Floating
Rate
Financial
Liabilities
£m
36.6
40.9
Financial
Liabilities
on which
no Interest
is paid
£m
72.2
68.5
Total
£m
82.4
4.7
80.7
1.6
169.4
84.3
7.0
81.2
2.3
174.8
Total
£m
168.8
173.8
As at 31 December 2017
Due within one year
Due within one to two years
Due within two to five years
Due after more than five years
As at 31 December 2016
Due within one year
Due within one to two years
Due within two to five years
Due after more than five years
Interest rate risk profile
As at 31 December 2017
Sterling
As at 31 December 2016
Sterling
The Group’s creditors falling due within one year (other than bank and other borrowings) are excluded from the above tables either due to the
exclusion of short term items or because they do not meet the definition of a financial liability.
Fixed rate financial liabilities
At 31 December 2017 the Group’s fixed rate financial liabilities related to bank borrowings that are covered by interest rate swaps and assets held
under finance leases (2016: Interest rate swaps and assets held under finance leases).
For assets held under finance leases the average interest rate incurred is 3.9% (2016: 3.1%) and the weighted average period remaining is
39 months (2016: 45 months).
170435 Johnson Service Group Annual Report Pt4_170435 Johnson Service Group Annual Report Pt4 02/03/2018 21:01 Page 87
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Annual Report and Accounts 2017 Johnson Service Group PLC 87
Annual Report and Accounts 2017 Johnson Service Group PLC 87
Financial instruments continued
24
The Group has entered into a number of interest rate swaps, the effect of which is to classify £50.0 million (2016: £50.0 million) of the Group’s
borrowings as fixed rate as follows:
➔ for £15.0 million of borrowings, LIBOR is replaced with 1.4725% from 8 January 2016 to 8 January 2019;
➔ for £15.0 million of borrowings, LIBOR is replaced with 1.665% from 8 January 2016 to 8 January 2020;
➔ for £10.0 million of borrowings, LIBOR is replaced with 0.49% from 30 June 2016 to 20 June 2018; and
➔ for £10.0 million of borrowings, LIBOR is replaced with 0.5525% from 30 June 2016 to 30 June 2019.
Gains and losses recognised in the hedging reserve in equity on interest rate swap contracts as of 31 December 2017 will be continuously released
to the Income Statement within finance costs until the end of the hedged period.
Floating rate financial liabilities
Floating rate financial liabilities bear interest at rates based on relevant LIBOR equivalents. Loans are drawn and interest rates fixed for periods of
between one and six months. The weighted average period remaining for floating rate financial liabilities is 6 months (2016: 6 months).
The variation in the interest rate of floating rate financial liabilities (with all other variables held constant) required to increase post-tax profit for the
year by £0.1 million is 30 basis points (2016: 30 basis points). The variation in the interest rate of floating rate financial liabilities (with all other
variables held constant) required to decrease post-tax profit for the year by £0.1 million is 30 basis points (2016: 30 basis points).
Fair values of financial liabilities
Bank loans are drawn down and interest set for no more than a six month period (2016: six month period). In view of this the fair value of bank loans
is not materially different from the book value. The fair value of other financial liabilities was not materially different from the book value.
The Group recognises financial instruments that are held at fair value. Financial instruments have been classified as Level 1, Level 2 or Level 3
dependant on the valuation method applied in determining their fair value.
The different levels have been defined as follows:
➔ Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level 1).
➔ Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly
(that is, derived from prices) (Level 2).
➔ Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (Level 3).
The only financial instruments held at fair value by the Group relate to interest rate swaps on a portion of the Group’s long term borrowings and
commodity swaps.
For both the years ended 31 December 2017 and 31 December 2016 the liabilities arising from these instruments have been classified as Level 2.
The fair value of these instruments at each of the period ends was:
Derivative financial instruments held:
– Interest rate products
– Commodity products
Fair Value 2017
£m
Fair Value 2016
£m
(0.4)
0.3
(0.8)
–
Further information regarding interest rate products is provided in the fixed rate financial liabilities section above. Commodity products relate to fuel
derivatives to hedge against movements in the price of diesel used in the Group’s operations. The fuel derivatives hedge the underlying commodity
price risk.
As at the balance sheet date, the Group has the following commodity hedges in place:
➔ 5.4 million litres of diesel at 30.37p for the period 1 January 2018 to 31 December 2018
➔ 2.1 million litres of diesel at 31.85p for the period 1 January 2019 to 31 December 2019
Where available, market rates have been used to determine fair value.
All financial instruments are Level 2 financial instruments for all periods and there have been no transfers between either Level 1 and 2 or Level 2
and 3 in any period.
S
S
T
T
R
R
A
A
T
T
E
E
G
G
I
I
C
C
R
R
E
E
P
P
O
O
R
R
T
T
C
C
O
O
R
R
P
P
O
O
R
R
A
A
T
T
E
E
G
G
O
O
V
V
E
E
R
R
N
N
A
A
N
N
C
C
E
E
I
I
I
I
G
G
R
R
O
O
U
U
P
P
F
F
N
N
A
A
N
N
C
C
A
A
L
L
S
S
T
T
A
A
T
T
E
E
M
M
E
E
N
N
T
T
S
S
C
C
O
O
M
M
P
P
A
A
N
N
Y
Y
F
F
N
N
A
A
N
N
C
C
A
A
L
L
I
I
I
I
S
S
T
T
A
A
T
T
E
E
M
M
E
E
N
N
T
T
S
S
S
S
H
H
A
A
R
R
E
E
H
H
O
O
L
L
D
D
E
E
R
R
I
I
N
N
F
F
O
O
R
R
M
M
A
A
T
T
O
O
N
N
I
I
170435 Johnson Service Group Annual Report Pt4_170435 Johnson Service Group Annual Report Pt4 02/03/2018 21:01 Page 88
88 Johnson Service Group PLC Annual Report and Accounts 2017
88 Johnson Service Group PLC Annual Report and Accounts 2017
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
Financial instruments continued
24
The fair value of the following financial assets and liabilities approximate their carrying amount:
➔ Trade receivables and other receivables
➔ Cash and cash equivalents
➔ Trade and other payables
Valuation techniques used to derive Level 2 fair values
Level 2 trading and hedging derivatives comprise interest rate swaps and commodity swaps. Interest rate swaps are fair valued using forward interest
rates extracted from observable yield curves. Commodity swaps are using a mark to market valuation at the balance sheet date. The effects of
discounting are generally insignificant for Level 2 derivatives.
Group’s valuation processes
The Group’s finance function includes a treasury team that performs the valuations of financial assets required for financial reporting purposes,
including Level 3 fair values (as required). This team reports directly to the Chief Financial Officer (CFO). Discussions of valuation processes and
results are held between the CFO and the treasury team at least once every six months, in line with the Group’s reporting dates.
Foreign currency risk
The Group purchases such a small proportion in currencies other than Sterling that there is no reasonable change in exchanges rates that would have
a material effect on the Group.
Capital risk management
The Group’s objectives when managing its capital structure are to safeguard the Group’s ability to continue as a going concern in order to provide
appropriate returns to Shareholders and benefits to other stakeholders.
In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to Shareholders, return capital to Shareholders,
issue new shares or take other steps to increase share capital and reduce or increase debt facilities.
The Group manages its capital structure using a number of measures and taking into account future strategic plans. Such measures include its
interest cover and gearing ratios which are included in its banking covenants. The Group remains compliant with its banking covenants.
The Group aims to maintain its gearing below two times, except where circumstances may increase gearing above this level but the cash flow
forecasts prepared by the Group show gearing to reduce back below the two times threshold in the short term, for example, in the case of a material
acquisition. Gearing is defined as the ratio of net debt (excluding unamortised fees) to adjusted EBITDA (which is the rolling 12 month adjusted
EBITDA for the Group in the relevant period, further adjusted to:
➔ add the adjusted EBITDA of a member of the Group acquired during the relevant period for the part of that period when it was not a member of
the Group (unless such adjusted EBITDA was negative); and
➔ exclude the adjusted EBITDA attributable to any member of the Group sold during the relevant period so long as the cash consideration has been
received.
At 31 December 2017, the gearing ratio was 1.6 times (2016: 1.8 times).
Contingent liabilities
25
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 £28.0 million to the Trustee ranking pari passu with up to £156.0 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 £0.2 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 £5.0 million. The Directors
believe the risk of settlement at, or near, the maximum level to be remote.
170435 Johnson Service Group Annual Report Pt4_170435 Johnson Service Group Annual Report Pt4 02/03/2018 21:01 Page 89
Annual Report and Accounts 2017 Johnson Service Group PLC 89
26
Share Capital
Issued and Fully Paid
Ordinary shares of 10p each:
– At start of period
– New shares issued
– At end of year
Issue of Ordinary shares of 10p each
An analysis of the new shares issued in each year is shown below:
Shares
2017
£m
Shares
365,108,019
1,391,356
366,499,375
36.5
0.1
36.6
330,570,023
34,537,996
365,108,019
2016
£m
33.1
3.4
36.5
Issued and Fully Paid
Ordinary shares of 10p each:
– Placing
– EBT
– SAYE
New shares issued
Shares
2017
£
Shares
2016
£
note 1
note 2
note 3
–
1,025,000
366,356
–
102,500
36,636
33,061,540
–
1,476,456
3,306,154
–
147,645
1,391,356
139,136
34,537,996
3,453,799
Note 1: During the year the Group placed nil (2016: 33,061,540) Ordinary shares with institutional investors raising net proceeds of £nil (2016:
£28.7 million) of which £nil (2016: £3.3 million) was credited to share capital. The placing in the prior year 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.
Note 2: 1,025,000 (2016: Nil) Ordinary shares were allotted to the EBT at nominal value to be used in relation to employee share option exercises.
The total nominal value received was £102,500 (2016: £nil). At the time of allotment, the EBT already held 20,753 (2016: 20,753) Ordinary
shares of 10 pence each which, together with the 1,025,000 (2016: nil) newly allotted Ordinary shares of 10 pence each, were part used to
satisfy the exercise of 1,029,043 (2016; nil) LTIP options.
Note 3: 366,356 (2016: 1,476,456) SAYE Scheme options were exercised with a total nominal value of £36,636 (2016: £147,645).
The total proceeds received on allotment in respect of all of the above transactions were £0.3 million (2016: £29.3 million) and were credited as
follows:
Share capital
Share premium
Retained earnings
2017
£m
0.1
0.2
–
0.3
2016
£m
3.4
0.5
25.4
29.3
S
S
T
T
R
R
A
A
T
T
E
E
G
G
I
I
C
C
R
R
E
E
P
P
O
O
R
R
T
T
C
C
O
O
R
R
P
P
O
O
R
R
A
A
T
T
E
E
G
G
O
O
V
V
E
E
R
R
N
N
A
A
N
N
C
C
E
E
I
I
G
R
O
U
P
F
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
C
C
O
O
M
M
P
P
A
A
N
N
Y
Y
F
F
N
N
A
A
N
N
C
C
A
A
L
L
I
I
I
I
Potential issues of Ordinary shares of 10p each
As at the balance sheet date, certain senior executives hold options in respect of potential issues of Ordinary shares of 10 pence each granted
pursuant to the 2009 Long-Term Incentive Plan (the ‘LTIP’) and the 2009 Long-Term Incentive Plan Approved Section (the ‘Approved LTIP’) (together
referred to as ‘Executive Schemes’) at prices ranging from nil to 80.0 pence.
Certain Group employees also hold options in respect of potential issues of Ordinary shares of 10p each granted pursuant to the Johnson Service
Group Sharesave Plan (hereinafter referred to as the ‘SAYE Scheme’) at prices ranging from 43.75 pence to 125.75 pence.
Options granted under the SAYE Scheme are normally exercisable within six months from the date exercisable as shown below. Options under the
Executive Schemes are normally exercisable, subject to the achievement of performance conditions, three years after the date of grant and within
seven years from the date exercisable as shown below. Upon exercise, all options are generally settled in equity.
S
S
T
T
A
A
T
T
E
E
M
M
E
E
N
N
T
T
S
S
S
S
H
H
A
A
R
R
E
E
H
H
O
O
L
L
D
D
E
E
R
R
I
I
N
N
F
F
O
O
R
R
M
M
A
A
T
T
O
O
N
N
I
I
170435 Johnson Service Group Annual Report Pt4_170435 Johnson Service Group Annual Report Pt4 02/03/2018 21:01 Page 90
90 Johnson Service Group PLC Annual Report and Accounts 2017
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
Share Capital continued
26
The number of shares subject to option under each scheme which were outstanding at 31 December 2017, the date on which they were granted and
the date from which they may be exercised are given below:
Scheme
LTIP
Approved LTIP
LTIP
LTIP
SAYE Scheme
SAYE Scheme
SAYE Scheme
SAYE Scheme
SAYE Scheme
Date Options
Granted
8 May 2015
8 May 2015
6 May 2016
27 March 2017
1 October 2013
1 October 2015
1 October 2015
1 October 2017
4 October 2017
Number
of Shares
1,062,500
187,500
964,238
1,110,484
3,324,722
368,628
970,230
492,721
1,091,280
366,205
3,289,064
6,613,786
Date
Exercisable
Note 1
Note 1
Note 1
Note 1
1 December 2018
1 December 2018
1 December 2020
1 December 2020
1 December 2022
Exercise Price
per Share
Nil
80.00p
Nil
Nil
43.75p
82.75p
82.75p
125.75p
125.75p
Note 1: The LTIP options granted are subject to performance conditions linked to the Company’s Earnings Per Share and Total Shareholder Return
and will ordinarily vest three years from grant. Further details are set out within the Board Report on Remuneration.
Share based payments
27
Executive Schemes
The 2009 Long-Term Incentive Plan (the ‘LTIP’) provides for an exercise price of nil. The 2009 Long-Term Incentive Plan Approved Section (the
‘Approved LTIP’) provides for an exercise price equal to the quoted closing mid-market price of the Company shares on the business day immediately
preceding the date of grant. The vesting period is generally three years. Both market based and non-market based performance conditions are
generally attached to the options, for which an appropriate adjustment is made when calculating the fair value of an option. If the options remain
unexercised after a period of 10 years from the date of grant, the options expire. Furthermore, options are forfeited if the employee leaves the Group
before the options vest, unless under exceptional circumstances.
SAYE Schemes
The Johnson Service Group Sharesave Plan provides for an exercise price equal to the average of the quoted mid-market price of the Company
shares on the business days immediately preceding the date of grant, less a discount of up to ten per cent. The vesting period under the scheme is
either three or five years and no performance conditions, other than remaining a Group employee, are attached to the options.
Disclosures
Movements in the current and prior year in respect of all share schemes are summarised below:
Executive schemes
Outstanding at beginning of the year
Granted during the year
Exercised during the year
Cancelled during the year
Outstanding at the end of the year
Exercisable at the end of the year
SAYE schemes
Outstanding at beginning of the year
Granted during the year
Exercised during the year
Lapsed during the year
Outstanding at the end of the year
Exercisable at the end of the year
2017
Weighted
Average Exercise
Price (p)
Number of
Options
2016
Weighted
Average Exercise
Price (p)
Number of
Options
3,571,221
1,110,484
(1,029,483)
(327,500)
3,324,722
–
2,458,478
1,457,485
(366,356)
(260,543)
3,289,064
–
5p
–
–
9p
5p
––
2,496,983
1,074,238
–
–
3,571,221
–
71p
126p
48p
74p
97p
–
4,045,517
–
(1,476,456)
(110,583)
2,458,478
325,228
7p
–
–
–
5p
59p
–
40p
63p
71p
40p
170435 Johnson Service Group Annual Report Pt4_170435 Johnson Service Group Annual Report Pt4 02/03/2018 21:01 Page 91
Annual Report and Accounts 2017 Johnson Service Group PLC 91
Share based payments continued
27
For options outstanding at 31 December 2017, the exercise date and the exercise price are disclosed within note 26.
During the year the Group recognised total expenses of £1.1 million (2016: £1.0 million) including associated social security costs of £0.3 million
(2016: £0.2 million) in relation to equity-settled share based payment transactions.
The average share price of Johnson Service Group PLC during the period was 129.0 pence (2016: 97.0 pence).
The aggregate gain made by Directors on the exercise of share options during the year was £1.1 million (2016: £nil). Further details are disclosed
within the Board Report on Remuneration on pages 37 to 44.
The fair value of options awarded to employees is determined by reference to option pricing models, principally Binomial models for SAYE schemes
and Monte Carlo models for all other schemes. The inputs into the Binomial and Monte Carlo models are as follows:
Weighted average share price at date of grant (pence)
Weighted average exercise price (pence)
Weighted average fair value (pence)
Expected volatility (%)
Expected life (years)
Risk free interest rate (%)
Expected dividend yield (%)
Options Granted
During 2017
Options Granted
During 2016
126
32
44
23.7
3.4
0.2
2.1
92
–
65
25.0
3.0
0.5
2.2
Expected volatility and expected dividend yield were determined by calculating the historical volatility of the Company’s share price and the historical
dividend yield for a period akin to the expected life of each option scheme. The risk free rate of return is based on the rate for UK government gilts on
the date of grant, for a period akin to the expected life of the option.
28
Share premium
Balance brought forward
Received on allotment of shares
Balance carried forward
29
Own shares
Balance brought forward and carried forward
2017
£m
15.0
0.2
15.2
2017
£m
–
2016
£m
14.5
0.5
15.0
2016
£m
–
S
S
T
T
R
R
A
A
T
T
E
E
G
G
I
I
C
C
R
R
E
E
P
P
O
O
R
R
T
T
C
C
O
O
R
R
P
P
O
O
R
R
A
A
T
T
E
E
G
G
O
O
V
V
E
E
R
R
N
N
A
A
N
N
C
C
E
E
I
I
G
R
O
U
P
F
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
C
C
O
O
M
M
P
P
A
A
N
N
Y
Y
F
F
N
N
A
A
N
N
C
C
A
A
L
L
I
I
I
I
Own shares represent the cost of shares in Johnson Service Group PLC purchased in the market and held by the Trustee of the EBT, to satisfy
options under the Group’s share option schemes (see note 27).
The number of shares and the market value at the balance sheet date are as follows:
Number of shares held
Market value £m
2017
16,256
–
2016
20,739
–
S
S
T
T
A
A
T
T
E
E
M
M
E
E
N
N
T
T
S
S
S
S
H
H
A
A
R
R
E
E
H
H
O
O
L
L
D
D
E
E
R
R
I
I
N
N
F
F
O
O
R
R
M
M
A
A
T
T
O
O
N
N
I
I
170435 Johnson Service Group Annual Report Pt4_170435 Johnson Service Group Annual Report Pt4 02/03/2018 21:01 Page 92
92 Johnson Service Group PLC Annual Report and Accounts 2017
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
30
Reconciliation of movements in Shareholders’ equity
Profit for the year
Dividends
Other recognised gains and losses relating to the year:
Issue of share capital
Share options (value of employee services)
Re-measurement and experience gains/(losses) (net of taxation)
Change in deferred tax due to change in tax rate
Current tax on share options
Cash flow hedges movement
Net addition to Shareholders’ equity
Opening Shareholders’ equity
Closing Shareholders’ equity
2017
£m
25.7
(9.5)
16.2
0.3
0.7
2.6
(0.1)
0.2
0.6
20.5
147.1
167.6
2016
£m
20.6
(7.7)
12.9
29.3
0.8
(2.9)
(0.1)
0.2
0.1
40.3
106.8
147.1
Business combinations
31
On 28 July 2017 the Group acquired 100% of the share capital of Clayfull Limited, which trades as PLS, for a net consideration of £7.5 million (being
a gross consideration of £6.6 million adjusted for normalised working capital, cash and debt like items together with £1.3 million in respect of the
acquisition of a freehold building used by PLS) plus associated fees. Included within net consideration is £0.3 million of contingent consideration.
Since acquisition, PLS has generated a profit of £0.2 million on revenue of £2.7 million. Had the business been acquired at the start of the period it is
estimated that a profit of £0.2 million would have been generated on revenue of £6.2 million.
On 11 December 2017 the Group acquired 100% of the share capital of StarCounty Textile Services Limited (‘Star’) for a net consideration of
£2.0 million (being a gross consideration of £3.9 million adjusted for debt like items) plus associated fees. Included within net consideration is
£0.2 million of contingent consideration. Since acquisition, Star has generated a profit of £nil on revenue of £0.3 million. Had the business been
acquired at the start of the period it is estimated that a profit of £2.0 million would have been generated on revenue of £4.5 million.
The provisional fair value of assets and liabilities acquired are as follows:
Intangible assets – Goodwill
Intangible assets – Customer contracts
Property, plant and equipment
Textile rental items
Trade and other receivables
Cash and cash equivalents/(overdraft)
Trade and other payables
Borrowings
Deferred income tax liability
Net consideration
PLS
£m
3.4
2.6
2.9
0.4
1.3
0.5
(2.2)
(0.7)
(0.7)
7.5
Star
£m
1.3
1.2
2.0
0.2
0.6
–
(1.4)
(1.4)
(0.5)
2.0
Total
£m
4.7
3.8
4.9
0.6
1.9
0.5
(3.6)
(2.1)
(1.2)
9.5
Goodwill represents the deferred income tax arising on the recognition of the customer contracts plus the expected benefits to the wider Group
arising from the acquisition. None of the acquired goodwill is expected to be deductible for tax purposes.
PLS and Star have been included within the HORECA reporting segment, PLS within the Afonwen CGU and Star within the Stalbridge CGU.
In 2016, the Group acquired the entire share capital of Zip Textiles (Services) Limited (‘Zip’), Chester Laundry Limited (‘Chester’) and Portgrade
Limited, together with its trading subsidiary Afonwen Laundry Limited (‘Afonwen’). Full details are provided in the 2016 Annual Report and Accounts.
170435 Johnson Service Group Annual Report Pt4_170435 Johnson Service Group Annual Report Pt4 02/03/2018 21:01 Page 93
Annual Report and Accounts 2017 Johnson Service Group PLC 93
31
Business combinations continued
Cash flows from business acquisition activity
The cash flows in relation to business acquisition activity are summarised below:
Net consideration payable
Contingent and deferred consideration
(Cash and cash equivalents)/overdraft acquired
Costs in relation to business acquisition activity paid in the year
2017
£m
9.5
(0.5)
(0.5)
0.7
9.2
2016
£m
52.2
0.8
3.7
1.3
58.0
The £0.5 million adjustment in 2017 relates to contingent consideration of £0.3 million and £0.2 million for PLS and Star respectively which may
become payable in future periods dependent upon the outcome of certain currently unknown events. The £0.8 million adjustment in 2016 relates to
deferred consideration paid in the prior year in relation to Ashbon, which was acquired in 2015. Further deferred consideration of £0.3 million relating
to that acquisition remains payable.
Costs in relation to business acquisition activity in the current year include the payment of £0.2 million of costs that were recognised in 2015 and
costs in the prior year relation to business acquisition activity include the payment of £0.1 million of costs that were recognised in 2015.
Discontinued operations
32
On 4 January 2017 the Group disposed of its Drycleaning operation for a consideration of £8.3 million on debt free, cash free basis and subject to
adjustments for normalised working capital. The initial proceeds for the disposal, net of transaction costs of £0.5 million, were £6.8 million, with a
further £1.0 million of contingent consideration which was received on 29 December 2017. 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 sale”. The anticipated loss on
disposal of £2.0 million was reflected as an impairment of goodwill as at 31 December 2016 and included within Discontinued Operations.
Disposal costs of £0.5 million were expensed in the year of which payments of £0.4 million were made. The remaining £0.1 million is expected to be
paid in 2018.
Intangible assets – Goodwill
Intangible assets – Software
Property, plant and equipment
Deferred income tax asset
Inventories
Trade and other receivables
Cash
Trade and other payables
Provisions
Included within Assets classified as held for sale
Included within Liabilities directly associated with assets classified as held for sale
Net assets disposed of
Proceeds receivable
Related costs
Profit on disposal
Assets/
(Liabilities)
Transferred
to Held
for Sale
£m
9.1
0.1
4.4
0.8
0.4
3.6
0.8
(6.0)
(3.4)
9.8
Impairment
£m
(2.0)
–
–
–
–
–
–
–
–
(2.0)
Carrying
value under
IFRS5 as at
31 December
2016 &
4 January 2017
£m
7.1
0.1
4.4
0.8
0.4
3.6
0.8
(6.0)
(3.4)
7.8
17.2
(9.4)
7.8
(8.3)
0.5
–
On 7 August 2013 the Facilities Management division was disposed of; full details of this transaction are provided in the 2013 Annual Report. There
is £1.1 million of contingent consideration outstanding in relation to this disposal, the receipt of which is dependent upon the acquirer utilising
acquired deferred tax assets. This receivable has been fully provided for and no contingent consideration was received during the current year.
There is an outstanding creditor in relation to prior year disposal costs of £0.2 million (2016: £0.2 million outstanding).
Discontinued operations in the current and prior year consist of the trade relating to the Drycleaning business, the related taxation charge and the
impairment of Goodwill recognised on classifying the related assets and liabilities as held for sale. The prior year also includes a property provision
release of £0.4 million for a property relating to operations discontinued in previous years.
S
S
T
T
R
R
A
A
T
T
E
E
G
G
I
I
C
C
R
R
E
E
P
P
O
O
R
R
T
T
C
C
O
O
R
R
P
P
O
O
R
R
A
A
T
T
E
E
G
G
O
O
V
V
E
E
R
R
N
N
A
A
N
N
C
C
E
E
I
I
G
R
O
U
P
F
N
A
N
C
A
L
S
T
A
T
E
M
E
N
T
S
C
C
O
O
M
M
P
P
A
A
N
N
Y
Y
F
F
N
N
A
A
N
N
C
C
A
A
L
L
I
I
I
I
S
S
T
T
A
A
T
T
E
E
M
M
E
E
N
N
T
T
S
S
S
S
H
H
A
A
R
R
E
E
H
H
O
O
L
L
D
D
E
E
R
R
I
I
N
N
F
F
O
O
R
R
M
M
A
A
T
T
O
O
N
N
I
I
170435 Johnson Service Group Annual Report Pt4_170435 Johnson Service Group Annual Report Pt4 02/03/2018 21:01 Page 94
94 Johnson Service Group PLC Annual Report and Accounts 2017
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
Discontinued operations continued
32
The total profit/(loss) relating to discontinued operations is as follows:
Revenue
Operating result/profit before amortisation of intangible assets
(excluding software amortisation) and exceptional items
Finance cost
Exceptional costs
Taxation credit/(charge)
Profit for the year
Impairment of assets classified as held for sale
Retained profit/(loss) from discontinued operations
Cash flows from discontinued operations
The cash flows from discontinued operations included within the Consolidated Statement of Cash Flows are as follows:
Proceeds from disposals
Payment of costs relating to disposals
Cash disposed of
Net proceeds from disposals
Net cash used in operating activities
Net cash used in investing activities
Net cash flow
2017
£m
–
–
–
–
0.3
0.3
–
0.3
2017
£m
8.3
(0.4)
(0.8)
7.1
(0.3)
–
6.8
2016
£m
44.3
2.0
(0.1)
0.4
(0.6)
1.7
(2.0)
(0.3)
2016
£m
–
–
–
–
(0.2)
(0.9)
(1.1)
Analysis of net debt
33
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.
December 2017
Debt due within one year
Debt due after more than one year
Finance leases
Total debt and lease financing
Cash and cash equivalents
Net debt
December 2016
Debt due within one year
Debt due after more than one year
Finance leases
Total debt and lease financing
Cash and cash equivalents
Net debt
At 1 January
2017
£m
(9.8)
(72.5)
(14.4)
(96.7)
(1.5)
(98.2)
At 1 January
2016
£m
(1.3)
(58.5)
(7.0)
(66.8)
(4.4)
(71.2)
Cash Flow
£m
9.2
(3.0)
5.3
11.5
(2.2)
9.3
Cash Flow
£m
(4.7)
(14.0)
5.3
(13.4)
2.9
(10.5)
Non-cash
Changes
£m
At 31 December
2017
£m
(1.1)
(0.4)
(0.9)
(2.4)
–
(2.4)
Non-cash
Changes
£m
(3.8)
–
(12.7)
(16.5)
–
(16.5)
(1.7)
(75.9)
(10.0)
(87.6)
(3.7)
(91.3)
At 31 December
2016
£m
(9.8)
(72.5)
(14.4)
(96.7)
(1.5)
(98.2)
170435 Johnson Service Group Annual Report Pt4_170435 Johnson Service Group Annual Report Pt4 02/03/2018 21:01 Page 95
Annual Report and Accounts 2017 Johnson Service Group PLC 95
Analysis of net debt continued
33
The cash and cash equivalents figures are comprised of the following balance sheet amounts:
Cash (Current Assets)
Overdraft (Borrowings, Current Liabilities)
Cash within assets held for sale (see note 32)
Finance lease obligations are comprised of the following balance sheet amounts:
Amounts due within one year (Borrowings, Current Liabilities)
Amounts due after more than one year (Borrowings, Non-Current Liabilities)
34
Reconciliation of net cash flow to movement in net debt
(Decrease)/increase in cash in the year
Decrease/(increase) in debt and lease financing
Change in net debt resulting from cash flows
Debt acquired through business acquisition
Movement in unamortised bank facility fees
Movement in net debt
Opening net debt
Closing net debt
2017
£m
5.3
(9.0)
–
(3.7)
2017
£m
(3.8)
(6.2)
(10.0)
2017
£m
(2.2)
11.5
9.3
(2.1)
(0.3)
6.9
(98.2)
(91.3)
Financial commitments
35
Capital expenditure
Contracts placed for future financial expenditure contracted but not provided for in the consolidated financial statements are shown below:
Property, plant and equipment
Revenue expenditure
Total future minimum lease payments under non-cancellable operating leases are as follows:
Land and buildings
– within one year
– between one and five years
– in five years or more
Plant and machinery
– within one year
– between one and five years
2017
£m
1.4
2017
£m
5.0
15.3
28.9
49.2
3.2
4.5
7.7
2016
£m
2.9
(5.2)
0.8
(1.5)
2016
£m
(4.9)
(9.5)
(14.4)
2016
£m
2.9
(13.4)
(10.5)
(16.5)
–
(27.0)
(71.2)
(98.2)
2016
£m
3.2
2016
£m
9.1
25.0
29.1
63.2
3.0
4.8
7.8
S
S
T
T
R
R
A
A
T
T
E
E
G
G
I
I
C
C
R
R
E
E
P
P
O
O
R
R
T
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C
C
O
O
R
R
P
P
O
O
R
R
A
A
T
T
E
E
G
G
O
O
V
V
E
E
R
R
N
N
A
A
N
N
C
C
E
E
I
I
G
R
O
U
P
F
N
A
N
C
A
L
S
T
A
T
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M
E
N
T
S
C
C
O
O
M
M
P
P
A
A
N
N
Y
Y
F
F
N
N
A
A
N
N
C
C
A
A
L
L
I
I
I
I
S
S
T
T
A
A
T
T
E
E
M
M
E
E
N
N
T
T
S
S
S
S
H
H
A
A
R
R
E
E
H
H
O
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L
L
D
D
E
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R
R
I
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N
N
F
F
O
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R
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M
M
A
A
T
T
O
O
N
N
I
I
170435 Johnson Service Group Annual Report Pt4_170435 Johnson Service Group Annual Report Pt4 02/03/2018 21:01 Page 96
96 Johnson Service Group PLC Annual Report and Accounts 2017
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS CONTINUED
Financial commitments continued
35
Of the prior year commitments, £18.3 million relating to land and buildings and £0.4 million relating to plant and machinery related to the Drycleaning
business sold 4 January 2017.
The total of future minimum sublease payments to be received under non-cancellable leases at the balance sheet date is £3.1 million (2016:
£1.6 million of which £1.1 million relates to the Drycleaning business sold on 4 January 2017).
Events after the reporting period
36
There were no events occurring after the balance sheet date that require disclosing in accordance with IAS 10, ‘Events after the reporting period’.
170435 Johnson Service Group Annual Report Pt5_170435 Johnson Service Group Annual Report Pt5 02/03/2018 21:07 Page 97
Annual Report and Accounts 2017 Johnson Service Group PLC 97
INDEPENDENT AUDITORS’ REPORT TO THE
MEMBERS OF JOHNSON SERVICE GROUP PLC
Report on the audit of the company financial statements
Opinion
In our opinion, Johnson Service Group PLC’s company financial statements (the “financial statements”):
➔ give a true and fair view of the state of the company’s affairs as at 31 December 2017 and of its cash flows for the year then ended;
➔ have been properly prepared in accordance with IFRSs as adopted by the European Union and as applied in accordance with the provisions of the
Companies Act 2006; and
➔ have been prepared in accordance with the requirements of the Companies Act 2006.
We have audited the financial statements, included within the Annual Report and Accounts (the “Annual Report”), which comprise: the Company
Balance Sheet as at 31 December 2017; the Company Statement of Comprehensive Income, the Company Statement of Cash Flows and the
Company Statement of Changes in Shareholders' Equity for the year then ended; the Statement of Significant Accounting Policies; and the Notes to
the Company Financial Statements.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities under ISAs
(UK) are further described in the Auditors’ responsibilities for the audit of the financial statements section of our report. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Independence
We remained independent of the group in accordance with the ethical requirements that are relevant to our audit of the financial statements in the
UK, which includes the FRC’s Ethical Standard, as applicable to listed entities, and we have fulfilled our other ethical responsibilities in accordance
with these requirements.
Our audit approach
Overview
➔ Overall materiality: £676,000 (2016: £640,000), based on 0.5% of net assets.
Materiality
Audit scope
Key audit
matters
➔ We performed full scope audit procedures over Johnson Service Group PLC (the parent company of the group)
➔ Impairment assessment of investments.
The scope of our audit
As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements. In particular, we
looked at where the directors made subjective judgements, for example in respect of significant accounting estimates that involved making
assumptions and considering future events that are inherently uncertain.
As in all of our audits we also addressed the risk of management override of internal controls, including evaluating whether there was evidence of
bias by the directors that represented a risk of material misstatement due to fraud.
Key audit matters
Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of the financial statements of
the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by the auditors,
including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the
engagement team. These matters, and any comments we make on the results of our procedures thereon, were addressed in the context of our audit
of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. This is not a
complete list of all risks identified by our audit.
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170435 Johnson Service Group Annual Report Pt5_170435 Johnson Service Group Annual Report Pt5 02/03/2018 21:07 Page 98
98 Johnson Service Group PLC Annual Report and Accounts 2017
INDEPENDENT AUDITORS’ REPORT TO THE
MEMBERS OF JOHNSON SERVICE GROUP PLC CONTINUED
Key audit matter
Impairment assessment of investments
Refer to page 104 of the Statement of Significant Accounting Policies
and note 6 of the Company Financial Statements.
The investment balance of £545.4 million is considered annually for
impairment, and an impairment charge of £21.8 million has been
recognised against this balance in the current financial year. The risk we
focused on is that the investment values may not be supported and that
an impairment charge may be required.
As a result of previous restructuring, strategic reviews and acquisitions
made, the carrying value of investments is considered an area of
heightened risk. The large magnitude of the balance, and the
assumptions made when assessing the valuation of investments add to
the judgemental nature of the balance
How our audit addressed the key audit matter
To assess the impairment assessment performed by the Directors’, where
investment balances are ultimately supported by the present value of
future estimated cash flows, we have performed the following:
➔ We evaluated and assessed the reasonableness of the Group’s future
cash flow forecasts, and the process by which they were prepared,
including comparing them to the latest Board approved budgets, and
testing the underlying calculations;
➔ assessed the reasonableness of the Board approved budget,
including assessing the revenue and costs included in those budgets
based on our understanding of the Group. We found the assumptions
underpinning the budgets to be consistent with our evidence;
➔ tested the Directors’ historical budgeting accuracy by evaluating
whether previous budgets had been achieved and found that actual
performance exceeded the budgeted figures for both revenue and
operating profit;
➔ tested the Directors’ key assumptions for long-term growth rates
outside the budget period, by comparing them to, and finding them
broadly in line with, forecast inflation rates in the UK;
➔ considered the discount rate by testing the inputs into the calculation,
including the cost of debt, equity risk premium and the beta factor;
and
➔ we performed our own sensitivities over the key drivers of the cash
flow forecasts, being revenue and margin growth, and the discount
rate used. Our discount rate sensitivity testing included developing an
independent expectation of an appropriate discount rate with
reference to data from other companies in the Group’s industry and
sectors and assessing the impact applying this rate would have on
the recoverable amounts determined.
In the cases whereby an investment balance is supported by the net
assets of the related company, we have considered the accuracy and
recoverability of this value, and identified no errors.
We assessed the accuracy of the impairment loss of £21.8 million
recognised in the year, and noted no errors with the amount recognised.
How we tailored the audit scope
We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a whole,
taking into account the structure of the company, the accounting processes and controls, and the industry in which it operates.
Materiality
The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together with
qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the individual
financial statement line items and disclosures and in evaluating the effect of misstatements, both individually and in aggregate on the financial
statements as a whole.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows.
Overall group materiality
£676,000 (2016: £640,000).
How we determined it
0.5% of net assets.
Rationale for benchmark applied
Net assets is considered to be appropriate as it is not a profit oriented company. The main source of income is
dividend income provided by other group companies. The company holds all investments in subsidiaries and
therefore net assets is deemed a generally accepted auditing benchmark.
We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £34,000 (2016: £32,000) as
well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons.
170435 Johnson Service Group Annual Report Pt5_170435 Johnson Service Group Annual Report Pt5 02/03/2018 21:07 Page 99
Annual Report and Accounts 2017 Johnson Service Group PLC 99
Going concern
In accordance with ISAs (UK) we report as follows:
Reporting obligation
We are required to report if we have anything material to add or draw attention to in respect of the directors’ statement in the financial statements
about whether the directors considered it appropriate to adopt the going concern basis of accounting in preparing the financial statements and the
directors’ identification of any material uncertainties to the company’s ability to continue as a going concern over a period of at least twelve months
from the date of approval of the financial statements.
Outcome
We have nothing material to add or to draw attention to. However, because not all future events or conditions can be predicted, this statement is not a
guarantee as to the company’s ability to continue as a going concern.
Reporting on other information
The other information comprises all of the information in the Annual Report other than the financial statements and our auditors’ report thereon. The
directors are responsible for the other information. Our opinion on the financial statements does not cover the other information and, accordingly, we
do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any form of assurance thereon.
In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other
information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially
misstated. If we identify an apparent material inconsistency or material misstatement, we are required to perform procedures to conclude whether
there is a material misstatement of the financial statements or a material misstatement of the other information. If, based on the work we have
performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report
based on these responsibilities.
With respect to the Strategic Report, Directors’ Report and Corporate Governance Statement, we also considered whether the disclosures required by
the UK Companies Act 2006 have been included.
Based on the responsibilities described above and our work undertaken in the course of the audit, the Companies Act 2006, (CA06) and ISAs (UK)
require us also to report certain opinions and matters as described below (required by ISAs (UK) unless otherwise stated).
Strategic Report and Directors’ Report
In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic Report and Directors’ Report for the
year ended 31 December 2017 is consistent with the financial statements and has been prepared in accordance with applicable legal requirements.
(CA06)
In light of the knowledge and understanding of the company and its environment obtained in the course of the audit, we did not identify any material
misstatements in the Strategic Report and Directors’ Report. (CA06)
The directors’ assessment of the prospects of the company and of the principal risks that would threaten the solvency or liquidity of the company
As a result of the directors’ voluntary reporting on how they have applied the UK Corporate Governance Code (the “Code”), we are required to report
to you if we have anything material to add or draw attention to regarding:
➔ The directors’ confirmation on page 30 of the Annual Report that they have carried out a robust assessment of the principal risks facing the
company, including those that would threaten its business model, future performance, solvency or liquidity.
➔ The disclosures in the Annual Report that describe those risks and explain how they are being managed or mitigated.
➔ The directors’ explanation on pages 4 and 5 of the Annual Report as to how they have assessed the prospects of the company, over what period
they have done so and why they consider that period to be appropriate, and their statement as to whether they have a reasonable expectation that
the company will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related
disclosures drawing attention to any necessary qualifications or assumptions.
We have nothing to report in respect of this responsibility.
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170435 Johnson Service Group Annual Report Pt5_170435 Johnson Service Group Annual Report Pt5 02/03/2018 21:07 Page 100
100 Johnson Service Group PLC Annual Report and Accounts 2017
INDEPENDENT AUDITORS’ REPORT TO THE
MEMBERS OF JOHNSON SERVICE GROUP PLC CONTINUED
Other Code Provisions
As a result of the directors’ voluntary reporting on how they have applied the Code, we are required to report to you if, in our opinion:
➔ The statement given by the directors, on page 25, that they consider the Annual Report taken as a whole to be fair, balanced and understandable,
and provides the information necessary for the members to assess the company’s position and performance, business model and strategy is
materially inconsistent with our knowledge of the company obtained in the course of performing our audit.
➔ The section of the Annual Report on page 31 describing the work of the Audit Committee does not appropriately address matters communicated
by us to the Audit Committee.
We have nothing to report in respect of this responsibility.
Responsibilities for the financial statements and the audit
Responsibilities of the directors for the financial statements
As explained more fully in the Directors’ Responsibilities Statement set out on page 25, the directors are responsible for the preparation of the
financial statements in accordance with the applicable framework and for being satisfied that they give a true and fair view. The directors are also
responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the company’s ability to continue as a going concern, disclosing as
applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the
company or to cease operations, or have no realistic alternative but to do so.
Auditors’ responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether
due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a
guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise
from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of these financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the FRC’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors’ report.
Use of this report
This report, including the opinions, has been prepared for and only for the company’s members as a body in accordance with Chapter 3 of Part 16 of
the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to
any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.
Other required reporting
Companies Act 2006 exception reporting
Under the Companies Act 2006 we are required to report to you if, in our opinion:
➔ we have not received all the information and explanations we require for our audit; or
➔ adequate accounting records have not been kept by the company, or returns adequate for our audit have not been received from branches not
visited by us; or
➔ certain disclosures of directors’ remuneration specified by law are not made; or
➔ the financial statements are not in agreement with the accounting records and returns.
We have no exceptions to report arising from this responsibility.
Other voluntary reporting
Other Code provisions
The directors have prepared a corporate governance statement and requested that we review it as though the company were a premium listed
company. We have nothing to report in respect of the requirement for the auditors of premium listed companies to report when the directors’
statement relating to the company’s compliance with the Code does not properly disclose a departure from a relevant provision of the Code specified,
under the Listing Rules, for review by the auditors.
Other matter
We have reported separately on the group financial statements of Johnson Service Group PLC for the year ended 31 December 2017.
Graham Parsons (Senior Statutory Auditor)
for and on behalf of PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
Manchester
27 February 2018
170435 Johnson Service Group Annual Report Pt6_170435 Johnson Service Group Annual Report Pt6 02/03/2018 21:12 Page 101
Annual Report and Accounts 2017 Johnson Service Group PLC 101
COMPANY STATEMENT OF COMPREHENSIVE INCOME
Profit/(loss) for the year
Items that will not be subsequently reclassified to profit or loss
Re-measurement and experience gains/(losses) on post-employment obligations
Taxation in respect of re-measurement and experience (gains)/losses
Change in deferred tax due to change in tax rate
Items that may be subsequently reclassified to profit or loss
Cash flow hedges (net of taxation) – fair value gains/(losses)
– transfers to administrative expenses
– transfers to finance cost
Other comprehensive income/(loss) for the year
Total comprehensive income/(loss) for the year
Year ended
31 December
2017
£m
21.9
3.2
(0.6)
(0.1)
0.2
–
0.4
3.1
25.0
COMPANY STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY
Balance at 1 January 2016
Loss for the year
Other comprehensive income/(loss)
Total comprehensive income/(loss) for the year
Share options (value of employee services)
Issue of share capital
Dividends paid
Transactions with Shareholders recognised directly in
Shareholders’ Equity
Balance at 31 December 2016
Balance at 1 January 2017
Profit for the year
Other comprehensive income
Total comprehensive income for the year
Share options (value of employee services)
Current tax on share options
Deferred tax on share options
Issue of share capital
Dividends paid
Transactions with Shareholders recognised directly in
Shareholders’ Equity
Balance at 31 December 2017
Share
Capital
£m
33.1
–
–
–
–
3.4
–
3.4
36.5
36.5
–
–
–
–
–
–
0.1
–
0.1
36.6
Share
Premium
£m
14.5
–
–
–
–
0.5
–
0.5
15.0
15.0
–
–
–
–
–
–
0.2
–
0.2
15.2
Merger
Reserve
£m
3.5
–
–
–
–
–
–
–
3.5
3.5
–
–
–
–
–
–
–
–
–
Capital
Redemption
Reserve
£m
0.6
–
–
–
–
–
–
–
0.6
0.6
–
–
–
–
–
–
–
–
–
Hedge
Reserve
£m
(0.8)
–
0.1
0.1
–
–
–
–
(0.7)
(0.7)
–
0.6
0.6
–
–
–
–
–
–
3.5
0.6
(0.1)
Retained
Earnings
£m
63.0
(11.4)
(3.0)
(14.4)
0.8
25.4
(7.7)
18.5
67.1
67.1
21.9
2.5
24.4
0.7
0.2
(0.1)
–
(9.5)
(8.7)
82.8
Year ended
31 December
2016
£m
(11.4)
(3.5)
0.6
(0.1)
(0.4)
0.2
0.3
(2.9)
(14.3)
Total
Equity
£m
113.9
(11.4)
(2.9)
(14.3)
0.8
29.3
(7.7)
22.4
122.0
122.0
21.9
3.1
25.0
0.7
0.2
(0.1)
0.3
(9.5)
(8.4)
138.6
All of the Retained Earnings reserve is considered to be distributable as at 31 December 2017 subject to the offset of the Hedge Reserve (2016: all
distributable subject to the offset of the hedge reserve).
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170435 Johnson Service Group Annual Report Pt6_170435 Johnson Service Group Annual Report Pt6 02/03/2018 21:12 Page 102
102 Johnson Service Group PLC Annual Report and Accounts 2017
COMPANY BALANCE SHEET
Assets
Non-current assets
Trade and other receivables
Deferred income tax assets
Investments
Current assets
Trade and other receivables
Current income tax assets
Derivative financial assets
Liabilities
Current liabilities
Trade and other payables
Borrowings
Provisions
Derivative financial liabilities
Non-current liabilities
Post-employment benefit obligations
Trade and other payables
Borrowings
Derivative financial liabilities
Net assets
Equity
Capital and reserves attributable to the company’s shareholders
Share capital
Share premium
Merger reserve
Capital redemption reserve
Hedge reserve
Retained earnings
Total Shareholders equity
Note
7
5
6
7
12
8
9
13
12
10
11
9
12
15
16
As at
31 December
2017
£m
As at
31 December
2016
£m
179.2
2.8
545.4
727.4
0.5
4.1
0.1
4.7
5.5
10.7
1.2
–
17.4
12.0
488.0
75.9
0.2
576.1
138.6
36.6
15.2
3.5
0.6
(0.1)
82.8
138.6
159.3
4.2
560.1
723.6
0.8
6.5
–
7.3
4.6
15.0
–
0.3
19.9
18.2
497.8
72.5
0.5
589.0
122.0
36.5
15.0
3.5
0.6
(0.7)
67.1
122.0
Profit for the company for the year was £21.9 million (2016: loss of £11.4 million).
The financial statements on pages 101 to 113 were approved by the Board of Directors on 27 February 2018 and signed on its behalf by:
Yvonne Monaghan
Chief Financial Officer
170435 Johnson Service Group Annual Report Pt6_170435 Johnson Service Group Annual Report Pt6 02/03/2018 21:12 Page 103
COMPANY STATEMENT OF CASH FLOWS
Cash flows from operating activities
Profit/(loss) for the year
Adjustments for:
Income tax credit
Total finance cost
Dividend income
Decrease in trade and other receivables
Increase in trade and other payables
Increase in amounts due from subsidiary companies
Investment impairment
Intercompany loans (forgiven)/waived
Costs in relation to business acquisition activity
Deficit recovery payments in respect of post-employment benefit obligations
Share-based payments
Post-employment benefit obligations
Decrease in provisions
Cash used in operations
Interest paid
Taxation paid
Net cash used in operating activities
Cash flows from investing activities
Acquisition of investment in subsidiary
Proceeds from sale of subsidiary
Dividends received
Interest received
Loans advanced to subsidiary companies
Net cash generated from/(used in) investing activities
Cash flows from financing activities
Loans received from subsidiary companies
Proceeds from borrowings
Repayments of borrowings
Net proceeds from issue of Ordinary shares
Dividend paid
Net cash generated from financing activities
Net (decrease)/increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Annual Report and Accounts 2017 Johnson Service Group PLC 103
Year ended
31 December
2017
£m
Note
21.9
(1.1)
(2.7)
(15.0)
–
0.7
(2.6)
21.8
(30.2)
0.3
(3.4)
0.7
(0.1)
(0.7)
(10.4)
(2.7)
(7.0)
(20.1)
(8.0)
7.9
14.4
6.6
(6.3)
14.6
15.9
82.0
(87.0)
0.3
(9.5)
1.7
(3.8)
(5.2)
(9.0)
18
Year ended
31 December
2016
£m
(11.4)
–
(1.2)
(3.4)
2.2
1.4
(2.4)
3.2
8.0
0.8
(1.9)
0.6
(0.1)
–
(4.2)
(2.7)
(6.0)
(12.9)
(54.0)
–
–
5.2
(11.1)
(59.9)
32.5
88.0
(65.5)
29.3
(7.7)
76.6
3.8
(9.0)
(5.2)
Cash and cash equivalents at the end of the year include cash of £nil and an overdraft of £9.0 million (2016: £nil and £5.2 million respectively).
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170435 Johnson Service Group Annual Report Pt6_170435 Johnson Service Group Annual Report Pt6 02/03/2018 21:12 Page 104
104 Johnson Service Group PLC Annual Report and Accounts 2017
STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES
The Company is incorporated and domiciled in the UK. The Company’s registered number is 523335. 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 Company financial statements were authorised for issue by the Board on 27 February 2018.
Basis of preparation
The principal accounting policies applied in the preparation of the Company Financial Statements are the same as those used in the Consolidated
Financial Statements as set out on pages 54 to 64 with the addition of the policies set out below. These policies have been consistently applied to
the information presented, unless otherwise stated.
Investments
Investments in Group Undertakings are recorded at cost, which is the fair value of the consideration paid. Investments are tested for impairment and
carried at cost less accumulated impairment losses. Where an impairment is identified, it is charged to the Income Statement within intangibles
amortisation and impairment (excluding software). Investments that suffered an impairment are reviewed for possible reversal of the impairment at
each reporting date.
Share based compensation
The Company operates a number of equity-settled, share based compensation plans. The economic cost of awarding shares and share options to
employees is recognised as an expense in the employing company’s Income Statement equivalent to the fair value of the benefit awarded. The fair
value is determined by reference to option pricing models, principally Binomial and Monte Carlo models. The fair value of the award is recognised in
the employing company’s Income Statement over the vesting period of the award. The grant by the Company of options over its equity instruments to
the employees of the subsidiary undertakings is treated as a capital contribution. The fair value of employee services received, measured by reference
to the grant date fair value, is recognised over the vesting period as an increase to the investment in that subsidiary undertaking, with a corresponding
credit to equity in the Company’s accounts.
Critical accounting estimates and assumptions
Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events
that are believed to be reasonable under the circumstances.
The Company makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the
related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets
and liabilities within the next financial year are discussed below:
(a)
(b)
(c)
Carrying value of investments in subsidiaries
Annually, the Directors consider whether there are any indicators of impairment that may suggest that the recoverable amount of the Company’s
investments in subsidiaries is less than their carrying amount. The assessment of impairment indicators requires management to apply judgment
in assessing current and forecast trading performance as well as assessing the impact of principal risks and uncertainties specific to the
investments it holds. Details of the Company’s investments are set out in note 6 and in the current year other than those disclosed, the Directors
have concluded that no indicators of impairment existed.
Income taxes
The Company is subject to income taxes. Judgement is required in determining the provision for income taxes. There are many transactions and
calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Company recognises liabilities for
anticipated tax issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from
the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such
determination is made.
Post-employment benefit obligations
The Company operates two post employment defined benefit arrangements (see note 23 of the Consolidated Financial Statements). Asset
valuations are based on the fair value of scheme assets. The valuations of the liabilities of the schemes are based on statistical and actuarial
calculations, using various assumptions including discount rates, future inflation rates and pension increases, life expectancy of scheme
members, flexible retirement options and cash commutations. The actuarial assumptions may differ materially from actual experience due to
changes in economic and market conditions, variations in actual mortality, higher or lower cash withdrawal rates and other changes. Any of
these differences could impact the assets or liabilities recognised in the Balance Sheet in future periods.
170435 Johnson Service Group Annual Report Pt6_170435 Johnson Service Group Annual Report Pt6 02/03/2018 21:12 Page 105
Annual Report and Accounts 2017 Johnson Service Group PLC 105
NOTES TO THE COMPANY FINANCIAL STATEMENTS
Company income statement
1
As permitted by Section 408(3) of the Companies Act 2006, the Income Statement of the Parent Company is not presented with these financial
statements. Details of dividends paid are included in note 10 of the consolidated financial statements. Details of Auditor’s remuneration are shown on
note 3 of the consolidated financial statements.
Directors emoluments
2
Detailed disclosures that form part of these financial statements are given in the Board Report on Remuneration on pages 37 to 44.
3
Employee benefit expense
Wages and salaries
Social security costs
Cost of employee share schemes
Pension costs - defined contribution plans
Total
2017
£m
2.4
0.3
1.0
0.1
3.8
The monthly average number of persons (including Executive Directors) employed for the company during the year was 15 (2016: 15).
4
Property, plant and equipment
Cost
At 31 December 2015, 2016 & 2017
Accumulated depreciation and impairment
At 31 December 2015, 2016 & 2017
Carrying Amount
At 31 December 2015, 2016 & 2017
There were £nil assets under construction at 31 December 2017 (2016: £nil).
Deferred income tax assets
5
Deferred income tax assets attributable to the Company are as follows:
Deferred income tax balances in respect of:
Depreciation in excess of capital allowances
Post-employment benefit obligations
Derivative financial instruments
Employee share schemes
Other short term timing differences
2017
£m
0.1
2.2
–
0.3
0.2
2.8
The following provides a reconciliation of the movement in each of the deferred income tax assets:
At 31 December 2015
(Charge)/credit to income
Credit to other comprehensive income
At 31 December 2016
(Charge)/credit to income
Charge to Shareholders equity
Charge to other comprehensive income
At 31 December 2017
Depreciation in
Excess of
Capital Allowances
£m
Post-employment
Benefit
Obligations
£m
Derivative
Financial
Instruments
£m
Employee
Share
Schemes
£m
Other
Short Term
Timing Differences
£m
0.1
0.1
–
0.2
(0.1)
–
–
0.1
3.0
(0.2)
0.6
3.4
(0.5)
–
(0.7)
2.2
0.2
(0.1)
–
0.1
–
–
(0.1)
–
0.2
0.1
–
0.3
0.1
(0.1)
–
0.3
0.2
–
–
0.2
–
–
–
0.2
2016
£m
2.2
0.3
0.8
0.1
3.4
Plant
And
Equipment
£m
0.3
0.3
–
2016
£m
0.2
3.4
0.1
0.3
0.2
4.2
Total
£m
3.7
(0.1)
0.6
4.2
(0.5)
(0.1)
(0.7)
2.8
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170435 Johnson Service Group Annual Report Pt6_170435 Johnson Service Group Annual Report Pt6 02/03/2018 21:12 Page 106
106 Johnson Service Group PLC Annual Report and Accounts 2017
NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
Deferred income tax assets continued
5
The taxation charge for the year is based on the effective rate of UK Corporation Tax for the period of 19.25% (2016: 20.00%). Changes to the UK
corporation tax rates were announced on 8 July 2015. These changes were substantively enacted as part of Finance Bill 2015 on 26 October 2015.
These include reductions to the main rate to reduce the rate to 19% from 1 April 2017 and to 18% from 1 April 2020.
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.
The Company has estimated that £0.3 million of the Company’s deferred income tax asset will be realised in the next 12 months. This is
management’s current best estimate and may not reflect the actual outcome in the next 12 months.
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 18.0% being used to measure all deferred tax balances as at 31 December 2017 (2016: 18.5%). The impact of the change in tax rates to
18.0% has been £nil credit in the Income Statement and a £0.1 million debit recognised directly in Shareholders’ equity.
It is estimated that £0.3 million of the deferred tax balances will be realised in the next 12 months. This is management’s current best estimate and
may not reflect the actual outcome in the next 12 months.
6
Investments
Investment in subsidiary undertakings
Cost
Brought forward
Additions
Movement relating to share options
Disposal
Carried forward
Accumulated impairment
Brought forward
Impairment
Disposal
Carried forward
Carrying amount
Opening
Closing
2017
£m
573.3
8.2
0.1
(6.0)
575.6
13.2
21.8
(4.8)
30.2
560.1
545.4
2016
£m
520.9
52.2
0.2
–
573.3
10.0
3.2
–
13.2
510.9
560.1
Particulars of subsidiary undertakings are shown in note 23.
During the year the Company acquired Clayfull Limited for a cost of £6.2 million and StarCounty Textile Services Limited for a cost of £2.0 million.
Details of these acquisitions are shown in note 31 of the Consolidated Financial Statements.
During the prior year the Company acquired Zip Textiles (Services) Limited for a cost of £14.0 million, Chester Laundry Limited for a cost of
£0.8 million and Portgrade Limited, together with its trading subsidiary Afonwen Laundry Limited, for a cost of £37.4 million. Details of these
acquisitions are shown in note 31 of the Consolidated Financial Statements.
During the year, the investment in Cleanology Limited was impaired following the cancellation of the intercompany balance payable by the Company.
During the prior year, the Company impaired its investment in Jeeves of Belgravia to the recoverable value prior to the disposal of the Drycleaning
business on 4 January 2017.
The Directors deem the investments to be recoverable due to the future forecasts of the Group.
170435 Johnson Service Group Annual Report Pt6_170435 Johnson Service Group Annual Report Pt6 02/03/2018 21:12 Page 107
Annual Report and Accounts 2017 Johnson Service Group PLC 107
2017
£m
0.3
0.1
0.1
0.5
179.2
179.2
2016
£m
0.5
0.3
–
0.8
159.3
159.3
7
Trade and other receivables
Amounts falling due within one year:
Receivables from subsidiaries
Other receivables
Prepayments and accrued income
Amounts falling due after more than one year:
Receivables from subsidiaries
Amounts owed by subsidiaries due within one year relate to invoiced services and are due according to the invoice terms.
Amounts owed by subsidiaries due after more than one year are unsecured and have no fixed date of repayment and the Company has no present
intention of demanding repayment in less than 12 months and therefore the amounts have been presented as non current assets. The Directors have
considered the difference between the book value and fair value of the amounts receivable to subsidiaries. Taking into account the one year risk free
rate of return of 0.43%, as at the balance sheet date, the fair value of amounts receivable from subsidiaries would be circa £178.4 million.
Other receivables which are less than three months past due are not considered impaired unless specific information indicates otherwise. Trade and
other receivables greater than three months past due are considered for recoverability, and where appropriate, a provision against bad debt is
recognised.
All Company receivables (including those from related parties) are not yet due or impaired.
All receivable balances at the balance sheet date are denominated in Sterling (2016: Sterling), and are held at amortised cost. Given their short term
nature there is deemed to be no difference between this and their fair value.
8
Trade and other payables
Trade payables
Other payables
Other taxation and social security liabilities
Accruals
2017
£m
0.3
1.7
0.6
2.9
5.5
2016
£m
0.4
1.8
0.5
1.9
4.6
All trade and other payable balances at the balance sheet date are denominated in Sterling (2016: Sterling), and are held at amortised cost. Given
their short term nature there is deemed to be no difference between this and their fair value.
9
Borrowings
Current
Overdraft
Bank loans
Non-current
Bank loans
Total Borrowings
The maturity of non-current bank loans is as follows:
– Between two and five years
– Unamortised issue costs of bank loans
2017
£m
9.0
1.7
10.7
75.9
75.9
86.6
76.0
(0.1)
75.9
2016
£m
5.2
9.8
15.0
72.5
72.5
87.5
73.0
(0.5)
72.5
All Group bank loans are held by the Company. Full details of Group facilities are provided in note 20 of the Consolidated Financial Statements.
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170435 Johnson Service Group Annual Report Pt6_170435 Johnson Service Group Annual Report Pt6 02/03/2018 21:12 Page 108
108 Johnson Service Group PLC Annual Report and Accounts 2017
NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
Borrowings continued
9
The Group has two overdraft facilities for £5.0 million and £3.0 million with two of its principal bankers (2016: £5.0 million and £3.0 million). Certain
cash balances in certain Group bank accounts can be offset with overdrawn balances in those bank accounts. The maximum amount any individual
Company may be overdrawn is £10.0 million and £5.0 million respectively (2016: £10.0 million and £5.0 million).
Post-employment benefit obligations
10
Details of the Group’s pension schemes are provided in note 23 of the Consolidated Financial Statements.
As at the 31 December 2017 and 31 December 2016 the entire Group liabilities under defined benefit schemes are held on the Company Balance
Sheet.
During the year the Company’s cost of defined contribution pension schemes was £0.1 million (2016: £0.1 million).
11
Trade and other payables (non-current)
Deferred consideration
Payables to subsidiaries
2017
£m
0.8
487.2
488.0
2016
£m
0.3
497.5
497.8
Amounts payable to subsidiaries are unsecured, have no fixed date of repayment and the Company has no expectation of repayment in the next 12
months and therefore the amounts have been presented as non-current liabilities. The Directors have considered the difference between the book
value and fair value of the amounts payable to subsidiaries. Taking into account the one year risk free rate of return of 0.43%, as at the balance sheet
date, the fair value of amounts payable to subsidiaries would be circa £485.1 million.
Derivative financial liabilities
12
Details of derivative financial liabilities are shown in note 24 of the consolidated financial statements. All of the Group’s derivative financial liabilities
are held by the Company.
13
Provisions
At 31 December 2015
At 31 December 2016
Transferred from other Group Companies
Released during the year
Utilised during the year
At 31 December 2017
Analysis of total provisions
Current
Property
£m
–
–
1.8
(0.3)
(0.3)
1.2
2016
£m
–
–
2017
£m
1.2
1.2
Property
The property provision relates to expected lease dilapidation costs for properties no longer in use by the Group. The estimates and judgements used
in determining the value of provisioning are continually evaluated and are based on historical experience and other factors, including expectations of
future events that are believed to be reasonable under the circumstances. The property provision is expected to be utilised in the next 12 months.
170435 Johnson Service Group Annual Report Pt6_170435 Johnson Service Group Annual Report Pt6 02/03/2018 21:12 Page 109
Annual Report and Accounts 2017 Johnson Service Group PLC 109
Contingent liabilities
14
The Company has guaranteed the banking facilities of certain UK subsidiary undertakings under a cross guarantee arrangement. No losses are
expected to result from this arrangement.
As a condition of the sale of the Facilities Management division in August 2013, the Company has put in place indemnities, to the buyer, 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 £5.0 million. The Directors believe
the risk of settlement at, or near, the maximum level to be remote.
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 of £0.2 million per annum, reduced pro rata as
guarantees are released. Such liabilities are not expected to give rise to any significant loss.
15
Share capital
Authorised
383,025,739 (2016: 383,025,739) Ordinary shares of 10p each
Issued and Fully Paid
Ordinary shares of 10p each:
At start of year
New shares issued
At end of year
2017
£m
38.3
2017
£m
Shares
36.5
0.1
36.6
330,570,023
34,537,996
365,108,019
Shares
365,108,019
1,391,356
366,499,375
Full details relating to the issue of Ordinary shares in the year are shown in note 26 of the consolidated financial statements.
16
Share premium
Balance brought forward
Received on allotment of shares
Balance carried forward
17
Reconciliation of movements in shareholders’ equity
Profit/(loss) for the year
Dividends
Other recognised gains and losses relating to the year:
Issue of share capital
Share option (value of employee services)
Current tax on share options
Deferred tax on share options
Re-measurement and experience gains/(losses) (net of taxation)
Change in deferred tax due to change in tax rate
Cash flow hedges movement
Net addition to Shareholders’ equity
Opening Shareholders’ equity
Closing Shareholders’ equity
2017
£m
15.0
0.2
15.2
2017
£m
21.9
(9.5)
12.4
0.3
0.7
0.2
(0.1)
2.6
(0.1)
0.6
16.6
122.0
138.6
2016
£m
38.3
2016
£m
33.1
3.4
36.5
2016
£m
14.5
0.5
15.0
2016
£m
(11.4)
(7.7)
(19.1)
29.3
0.8
–
–
(2.9)
(0.1)
0.1
8.1
113.9
122.0
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170435 Johnson Service Group Annual Report Pt6_170435 Johnson Service Group Annual Report Pt6 02/03/2018 21:12 Page 110
110 Johnson Service Group PLC Annual Report and Accounts 2017
NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
Analysis of net debt
18
Net debt is calculated as total borrowings less cash and cash equivalents, less unamortised facility fees. Non-cash changes represent the effects of
the recognition and subsequent amortisation of issue costs relating to the bank facility and changing maturity profiles.
Debt due within one year
Debt due after more than one year
Debt and lease financing
Cash and cash equivalents
Net debt
Debt due within one year
Debt due after more than one year
Debt and lease financing
Cash and cash equivalents
Net debt
19
Reconciliation of net cash flow to movement in net debt
(Decrease)/increase in cash in year
Decrease/(increase) in debt and lease financing
Change in net debt resulting from cash flows
Movement in unamortised bank facility fees
Movement in net debt in year
Opening net debt
Closing net debt
At 1 January
2017
£m
(9.8)
(72.5)
(82.3)
(5.2)
(87.5)
At 1 January
2016
£m
(1.3)
(58.5)
(59.8)
(9.0)
(68.8)
Cash Flow
£m
8.0
(3.0)
5.0
(3.8)
1.2
Cash Flow
£m
(8.5)
(14.0)
(22.5)
3.8
(18.7)
Other
Non-cash
Changes
£m
0.1
(0.4)
(0.3)
–
(0.3)
Other
Non-cash
Changes
£m
–
–
–
–
–
2017
£m
(3.8)
5.0
1.2
(0.3)
0.9
(87.5)
(86.6)
At 31 December
2017
£m
(1.7)
(75.9)
(77.6)
(9.0)
(86.6)
At 31 December
2016
£m
(9.8)
(72.5)
(82.3)
(5.2)
(87.5)
2016
£m
3.8
(22.5)
(18.7)
–
(18.7)
(68.8)
(87.5)
Financial commitments
20
Capital expenditure
As at 31 December 2017 the Company had no contracts placed for future capital expenditure that were not provided for in the financial statements
(2016: £nil).
Revenue expenditure
Total future minimum lease payments under non-cancellable operating leases are as follows:
Land and buildings
– within one year
– between one and five years
Plant and machinery
– within one year
2017
£m
0.1
0.2
0.3
0.1
0.1
2016
£m
0.1
0.3
0.4
0.1
0.1
170435 Johnson Service Group Annual Report Pt6_170435 Johnson Service Group Annual Report Pt6 02/03/2018 21:12 Page 111
Annual Report and Accounts 2017 Johnson Service Group PLC 111
Related party transactions
21
Transactions during the year between the Company and its subsidiaries, which are related parties, are eliminated on consolidation.
The following significant transactions with subsidiary undertakings occurred in the year:
Intercompany loans payable forgiven/(receivable waived)
Dividends received
Interest paid
Interest received
2017
£m
30.2
15.0
(0.8)
6.6
51.0
2016
£m
(8.0)
3.4
(0.5)
5.6
0.5
The key management of the Company are considered to be only the Directors of the Company and details of their compensation is provided in the
Board Report on Remuneration. The Company did not enter into any form of loan arrangement with any Director during any of the years presented.
Events after the reporting period
22
There were no events occurring after the balance sheet date which should be disclosed in accordance with IAS 10, ‘Events after the reporting period’.
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170435 Johnson Service Group Annual Report Pt6_170435 Johnson Service Group Annual Report Pt6 02/03/2018 21:12 Page 112
112 Johnson Service Group PLC Annual Report and Accounts 2017
NOTES TO THE COMPANY FINANCIAL STATEMENTS CONTINUED
Subsidiaries
23
The company has a number of subsidiary companies, a list of which is shown below.
Subsidiary companies at the balance sheet date
Johnsons Apparelmaster Limited *
StarCounty Textile Services Limited
Johnson Group Properties PLC
Semara Estates Limited *
Johnson Investment Limited
Johnson Group Inc (UK) Limited
Semara Group Limited*
Semara Investments Limited*
Semara Contract Services Limited*
Afonwen Laundry Limited*
Ashbon Services Limited
Bentley Textile Services Limited*
Bright Clothing Limited*#
Bourne Service Group Limited
Bourne Textile Services Limited*
Caterers Linen Supply Limited*
Catering Linen Supply Limited*
Chester Laundry Limited
Clayfull Limited
Cleanology Limited
Clifton Cleaning Limited
ELT Uniforms Limited*#
Greaseaters Limited*#
Greenearth Cleaning Europe Limited
Greenearth Cleaning Limited
Johnson Group Cleaners Trustee Company (no 1) Limited
Johnson Group Cleaners Trustee Company (no 2) Limited
Johnson Group Management Services Limited
Johnson Group Pension Nominees Limited
Johnson Hospitality Services Limited
JSG PLC*
London Linen Management Services Limited*
London Linen Supply Limited
London Workwear Rental Limited*
Oxford Software Limited*#
Portgrade Limited
Quality Cleaners Limited*#
Quality Textile Services Limited
Roboserve Limited
Semara Limited*#
Semara Nominees Limited*
Semara Trustees Limited*
Stalbridge Linen Services Limited*
Stuarts Express Dyers and Cleaners Limited*#
Subco 21 Limited
Warrender Aircraft Services Limited*#
Whiteriver Laundry Limited*
Wintex UK Limited
Zip Textiles (Services) Limited
Principal Activity
Textile and linen rental
Textile and linen rental
Property holding
Property holding
Holding company
Holding company
Holding company
Holding company
Holding company
Non-trading company
Non-trading company
Non-trading company
Non-trading company
Non-trading company
Non-trading company
Non-trading company
Non-trading company
Non-trading company
Non-trading company
Non-trading company
Non-trading company
Non-trading company
Non-trading company
Non-trading company
Non-trading company
Non-trading company
Non-trading company
Non-trading company
Non-trading company
Non-trading company
Non-trading company
Non-trading company
Non-trading company
Non-trading company
Non-trading company
Non-trading company
Non-trading company
Non-trading company
Non-trading company
Non-trading company
Non-trading company
Non-trading company
Non-trading company
Non-trading company
Non-trading company
Non-trading company
Non-trading company
Non-trading company
Non-trading company
Registered Office
2
9
1
1
1
1
1
1
1
6
2
3
1
4
4
3
3
8
10
1
1
1
1
1
1
1
1
1
1
1
1
3
3
3
1
6
1
1
1
1
1
1
1
1
1
1
6
7
5
Johnson Service Group PLC owns directly or indirectly the entire share capital of each of these companies. The share capital of the companies
annotated * are held through intermediate holding companies. All companies above are incorporated in Great Britain and registered in England and
Wales, apart from Clayfull Limited which is registered in Scotland.
170435 Johnson Service Group Annual Report Pt6_170435 Johnson Service Group Annual Report Pt6 02/03/2018 21:12 Page 113
Annual Report and Accounts 2017 Johnson Service Group PLC 113
In the table above, references to Registered Offices are as follows:
Johnson House, Abbots Park, Monks Way Preston Brook, Runcorn, Cheshire, WA7 3GH
Pittman Way, Fulwood, Preston, Lancashire, PR2 9ZD
6/8 Jackson Way, Great Western Industrial Park, Windmill Lane, Southall, Middlesex, UB2 4SF
Bourne Services Group, Cherry Holt Road, Bourne, Lincolnshire, PE10 9LA
Redfern Park Way, Tyseley, Birmingham, B11 2BF
Afonwen, Pwllheli, Gwynedd, LL53 6NQ
Stalbridge Linen Services, Christys Lane, Shaftesbury, Dorset, SP7 8PH
Unit 4 Bumpers Lane, Sealand Industrial Estate, Chester, CH1 4LT
Aerial Road, Llay Idustrial Estate South, Llay, Wrexham, Flintshire. LL12 0TU
1)
2)
3)
4)
5)
6)
7)
8)
9)
10) Unit 1, Sherwood Industrial Estate, Bonnyrigg, EH19 3LU
Companies annotated # were stuck off from the Companies House register on 9 January 2018.
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170435 Johnson Service Group Annual Report Pt7_170435 Johnson Service Group Annual Report Pt7 02/03/2018 21:26 Page 114
114 Johnson Service Group PLC Annual Report and Accounts 2017
NOTICE OF ANNUAL GENERAL MEETING
Company Number: 00523335
This Document is important and requires your immediate attention. If
you are in any doubt as to any aspect of the contents of this Document
or the action you should take, you are recommended to consult
immediately your stockbroker, solicitor, accountant or other independent
adviser authorised under the Financial Services and Markets Act 2000
if you are resident in the United Kingdom or, if you reside elsewhere,
another appropriately authorised financial adviser.
If you have sold or otherwise transferred all of your shares in Johnson
Service Group PLC (“JSG” or the “Company”), please pass this
document together with the accompanying proxy form as soon as
possible to the purchaser or transferee, or to the person who arranged
the sale or transfer so they can pass these documents to the person
who now holds the shares.
NOTICE is hereby given that the Annual General Meeting of Johnson
Service Group PLC will be held at the Doubletree by Hilton Chester,
Warrington Road, Hoole, Chester, CH2 3PD on Thursday 3 May 2018
at 11am to transact the business set out in the Resolutions below.
Resolutions 1 to 12 (inclusive) and resolutions 16 and 17 will be
proposed as Ordinary Resolutions and Resolutions 13 to 15 (inclusive)
will be proposed as Special Resolutions.
The business of the meeting will be:
Ordinary Business
To consider and, if thought fit, pass the following resolutions which will
be proposed as Ordinary Resolutions:
1. To receive and adopt the financial statements for the year ended
31 December 2017 together with the reports of the Directors and
the auditor on those financial statements.
2. To approve the Board Report on Remuneration as set out on pages
37 to 44 of the 2017 Annual Report.
3. To confirm the payment of the interim dividend of 0.9 pence per
Ordinary Share and to declare a final dividend of 1.9 pence per
Ordinary Share for the year ended 31 December 2017.
4. To re-elect Mr. P. Moody as a Director.
5. To re-elect Mr. C. Sander as a Director.
6. To re-elect Mrs. Y. Monaghan as a Director.
7. To re-elect Mr. W. Shannon as a Director.
8. To re-elect Mr. N. Gregg as a Director.
9. To elect Mr. P. Egan as a Director.
10.To re-appoint PricewaterhouseCoopers LLP as auditor to the
Company until the conclusion of the next general meeting at which
accounts are laid before the Company.
11.To authorise the Audit Committee to determine the remuneration of
the auditor.
Special Business
12.To consider and, if thought fit, pass the following resolution which will
be proposed as an Ordinary Resolution:
“That, in substitution for all existing and unexercised authorities and
powers, the Directors of the Company be and they are hereby
generally and unconditionally authorised for the purposes of section
551 of the Companies Act 2006 to exercise all powers of the
Company to allot equity securities (as defined in section 560 of the
Companies Act 2006) (“Equity Securities”) to such persons at such
times and on such terms and conditions as the Directors may
determine and subject always to the Articles of Association, provided
that the aggregate of the nominal amount of such Equity Securities
that may be allotted under this authority shall not exceed
£12,216,646.
This authority shall, unless previously renewed, varied or revoked by
the Company in general meeting, expire at the conclusion of the next
Annual General Meeting of the Company to be held after the
passing of this resolution or, if earlier, on 1 July 2019, save that the
Directors of the Company may, before such expiry make an offer or
agreement which would or might require Equity Securities to be
allotted after such expiry and the Directors of the Company may allot
Equity Securities in pursuance of any such offer or agreement as if
the authority conferred hereby had not expired.
All unutilised authorities previously granted to the Directors of the
Company under section 551 of the Companies Act 2006 shall
cease to have effect at the conclusion of the Annual General
Meeting (save to the extent that the same are exercisable pursuant
to section 551(7) of the Companies Act 2006 by reason of any
offer or agreement made prior to the date of this resolution which
would or might require equity securities to be allotted on or after that
date).”
13.To consider and, if thought fit, pass the following resolution which will
be proposed as a Special Resolution:
“That, subject to and conditional upon the passing of the Ordinary
Resolution numbered 12 in this notice of Annual General Meeting of
the Company and in substitution for all existing and unexercised
authorities and powers, the Directors of the Company be and are
hereby generally and unconditionally empowered pursuant to section
570 of the Companies Act 2006 to allot Equity Securities pursuant
to the authority conferred upon them by the Ordinary Resolution
numbered 12 in this notice of Annual General Meeting of the
Company as if section 561 of the Companies Act 2006 did not
apply to any such allotment of Equity Securities, provided that this
power shall be limited to:
(i) the allotment of Equity Securities in connection with a rights
issue or similar offer to or in favour of ordinary shareholders
where the Equity Securities respectively attributable to the
interests of all ordinary shareholders are proportionate (as nearly
as may be) to the respective numbers of shares held by them on
that date provided that the Directors of the Company may make
such exclusions or other arrangements to deal with any legal or
practical problems under the laws of any territory or the
requirement of any regulatory body or any stock exchange or with
fractional entitlements as they consider necessary or expedient;
and
(ii) the allotment (otherwise than pursuant to sub paragraph (i)
above) of Equity Securities pursuant to the authority granted
under the Ordinary Resolution numbered 12 in this notice of
170435 Johnson Service Group Annual Report Pt7_170435 Johnson Service Group Annual Report Pt7 02/03/2018 21:26 Page 115
Annual Report and Accounts 2017 Johnson Service Group PLC 115
Annual General Meeting up to an aggregate nominal amount of
£1,832,497 (representing approximately 5% of the Company’s
share capital as at 26 February 2018).
This power shall expire at the conclusion of the next Annual General
Meeting of the Company to be held after the passing of this
resolution or, if earlier, on 1 July 2019, unless previously renewed,
varied or revoked by the Company in general meeting, save that the
Company may before such expiry make any offer or enter into any
agreement which would or might require Equity Securities to be
allotted after such expiry and the Directors of the Company may allot
Equity Securities in pursuance of any such offer or agreement as if
the power conferred hereby had not expired. All previous authorities
under Section 571 of the Companies Act 2006 shall cease to have
effect at the conclusion of the Annual General Meeting.”
14.To consider and, if thought fit, pass the following resolution which will
be proposed as a Special Resolution:
“That, subject to and conditional upon the passing of the Ordinary
Resolution numbered 12 in this notice of Annual General Meeting of
the Company and in addition to any authority granted under the
Special Resolution numbered 13 in this notice of Annual General
Meeting of the Company, the Directors of the Company be and are
hereby generally and unconditionally empowered pursuant to section
570 of the Companies Act 2006 to allot Equity Securities pursuant
to the authority conferred upon them by the Ordinary Resolution
numbered 12 in this notice of Annual General Meeting of the
Company as if section 561 of the Companies Act 2006 did not
apply to any such allotment of Equity Securities, provided that this
power shall be:
(i) limited to the allotment of Equity Securities pursuant to the
authority granted under the Ordinary Resolution numbered 12 in
this notice of Annual General Meeting of the Company up to an
aggregate nominal amount of £1,832,497 (representing
approximately 5% of the Company’s share capital as at
26 February 2018); and
(ii) used only for the purposes of financing (or refinancing, if the
authority is to be used within six months after the original
transaction) a transaction which the Directors of the Company
determine to be an acquisition or other capital investment of a
kind contemplated by the Statement of Principles on Disapplying
Pre-Emption Rights most recently published by the Pre-Emption
Group prior to the date of this notice of Annual General Meeting
of the Company.
This power shall expire at the conclusion of the next Annual General
Meeting of the Company to be held after the passing of this
resolution or, if earlier, on 1 July 2019, unless previously renewed,
varied or revoked by the Company in general meeting, save that the
Company may before such expiry make any offer or enter into any
agreement which would or might require Equity Securities to be
allotted after such expiry and the Directors of the Company may allot
Equity Securities in pursuance of any such offer or agreement as if
the power conferred hereby had not expired. All previous authorities
under Section 571 of the Companies Act 2006 shall cease to have
effect at the conclusion of the Annual General Meeting.”
15.To consider and, if thought fit, pass the following resolution which will
be proposed as a Special Resolution:
“That, in accordance with article 12 of the Articles of Association and
in accordance with the Companies Act 2006, the Directors of the
Company be and are hereby generally and unconditionally
authorised for the purposes of section 701 of the Companies Act
2006 to make market purchases (within the meaning of section
693(4) of the Companies Act 2006) of ordinary shares of 10 pence
each in the capital of the Company (“Ordinary Shares”) on such
terms and in such manner as the Directors of the Company may
from time to time determine, provided that:
(i) the maximum number of Ordinary Shares that may be purchased
under this authority is 36,649,937;
(ii) the minimum price which may be paid for an Ordinary Share is
10p exclusive of attributable expenses payable by the Company
(if any); and
(iii) the maximum price which may be paid for an Ordinary Share is
an amount equal to not more than 105% of the average of the
middle market quotations for the Ordinary Shares as derived from
the London Stock Exchange Daily Official List for the five
business days immediately preceding the day on which the
purchase is made exclusive of attributable expenses payable by
the Company (if any).
The authority hereby conferred shall, unless previously revoked or
varied, expire at the conclusion of the next Annual General Meeting
of the Company held after the passing of this resolution or, if earlier,
on 1 July 2019 save in relation to purchases of Ordinary Shares the
contract for which was concluded before the expiry of this authority
and which will or may be executed wholly or partly after such expiry,
where the Company may make a purchase of Ordinary Shares in
pursuance of any such contract.
All previous unutilised authorities for the Company to make market
purchases of Ordinary Shares are revoked, except in relation to the
purchase of shares under a contract or contracts concluded before
the date of this resolution and where such purchase has not yet
been executed.”
16.To consider and, if thought fit, pass the following resolution which will
be proposed as an Ordinary Resolution:
“That the rules of the Johnson Service Group 2018 Long Term
Incentive Plan (the “2018 LTIP”), the principal terms of which are set
out in Appendix 1 to this notice of Annual General Meeting of the
Company, and in the form produced in draft to the meeting and for
the purposes of identification initialled by the Chairman of the
meeting, be and are hereby approved and adopted and that the
Directors are hereby authorised to:
(i) adopt further plans for the benefit of employees in overseas
territories based on the 2018 LTIP but modified to take account
of local tax, exchange control or securities laws, provided that any
Ordinary Shares made available under such further plans are
treated as counting against any limits on individual or overall
participation in the 2018 LTIP; and
(ii) do all such acts and things which they may consider necessary or
expedient for the purposes of carrying the 2018 LTIP into effect
including to make such amendments to the rules of the CSOP
sub-plan to the 2018 LTIP as may be required in order for the
CSOP sub-plan to qualify for tax advantaged status under
Schedule 4 to the Income Tax (Earnings and Pensions) Act
2003.”
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170435 Johnson Service Group Annual Report Pt7_170435 Johnson Service Group Annual Report Pt7 02/03/2018 21:26 Page 116
116 Johnson Service Group PLC Annual Report and Accounts 2017
NOTICE OF ANNUAL GENERAL MEETING CONTINUED
17. To consider and, if thought fit, pass the following resolution which will
be proposed as an Ordinary Resolution:
“That the rules of the Johnson Service Group 2018 Save As You
Earn Plan (the “2018 SAYE”) the principal terms of which are set out
in Appendix 2 to this notice of Annual General Meeting of the
Company, and in the form produced in draft to the meeting and for
the purposes of identification initialled by the Chairman of the
meeting, be and are hereby approved and adopted and that the
Directors are hereby authorised to:
(i) adopt further plans for the benefit of employees in overseas
territories based on the 2018 SAYE but modified to take account
of local tax, exchange control or securities laws, provided that any
Ordinary Shares made available under such further plans are
treated as counting against any limits on individual or overall
participation in the 2018 SAYE; and
(ii) do all such acts and things which they may consider necessary or
expedient for the purposes of carrying the 2018 SAYE into effect
including to make such amendments to the rules of the 2018
SAYE as may be required in order for the 2018 SAYE to qualify
for tax advantaged status under Schedule 3 to the Income Tax
(Earnings and Pensions) Act 2003.”
All Shareholders will find enclosed with this document a form of
proxy to be used in connection with the Annual General Meeting. A
member entitled to attend and vote at the meeting may appoint one
or more proxies to attend and to speak and vote in his stead. The
proxy need not be a member of the Company.
By Order of the Board
Tim Morris
Company Secretary
Abbots Park
Monks Way
Preston Brook
Cheshire WA7 3GH
27 February 2018
Accompanying Notes
1. A member of the Company entitled to attend and vote at the Annual
General Meeting may appoint one or more persons as his/her proxy
to exercise all or any of his/her rights to attend, speak and vote at
the Annual General Meeting of the Company. A member may
appoint more than one proxy in relation to the Annual General
Meeting provided that each proxy is appointed to exercise rights
attached to a different share or shares held by him/her. A proxy
need not be a member of the Company. The form of proxy is
enclosed. The form of proxy and power of attorney or other authority,
if any, under which it is signed or a certified copy of such power of
authority must be received by the Company’s Registrars, Link Asset
Services, The Registry, 34 Beckenham Road, Beckenham, Kent,
BR3 4TU not later than 48 hours prior to the commencement of the
Annual General Meeting. Completion of the form will not prevent you
from attending and voting at the meeting instead of the proxy, if you
wish.
To appoint more than one proxy, additional proxy forms may be
obtained by contacting the Registrars or you may photocopy the
proxy form. Please indicate in the box next to the proxy holder’s
name the number of shares in relation to which they are authorised
to act as your proxy. Please also indicate by ticking the box provided
if the proxy instruction is one of multiple instructions being given. All
forms must be signed and returned in the same envelope.
In accordance with Section 325 of the Companies Act 2006, the
right to appoint proxies does not apply to persons nominated to
receive information rights under Section 146 of the Companies Act
2006. Persons nominated to receive information rights under
Section 146 of the Companies Act 2006 who have been sent a
copy of this notice of meeting are hereby informed, in accordance
with Section 149 (2) of the Companies Act 2006, that they may
have a right under an agreement with the registered member by
whom they were nominated to be appointed, or to have someone
else appointed, as a proxy for this meeting. If they have no such right,
or do not wish to exercise it, they may have a right under such an
agreement to give instructions to the member as to the exercise of
voting rights. Nominated persons should contact the registered
member by whom they were nominated in respect of these
arrangements.
In order to facilitate voting by corporate representatives at the
meeting, arrangements will be put in place at the meeting so that:
(i) if a corporate Shareholder has appointed the Chairman of the
meeting as its corporate representative with instructions to vote
on a poll in accordance with the directions of all of the other
corporate representatives for that Shareholder at the meeting,
then on a poll those corporate representatives will give voting
directions to the Chairman and the Chairman will vote (or
withhold a vote) as corporate representative in accordance with
those directions; and
(ii) if more than one corporate representative for the same corporate
Shareholder attends the meeting but the corporate Shareholder
has not appointed the Chairman of the meeting as its corporate
representative, a designated corporate representative will be
nominated, from those corporate representatives who attend,
who will vote on a poll and the other corporate representatives
will give voting directions to that designated corporate
representative.
Corporate Shareholders are referred to the guidance issued by the
Institute of Chartered Secretaries and Administrators on proxies and
corporate representatives – www.icsa.org.uk – for further details of
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Annual Report and Accounts 2017 Johnson Service Group PLC 117
this procedure. The guidance includes a sample form of
representation letter if the Chairman is being appointed as described
in (i) above.
2. CREST members who wish to appoint a proxy or proxies by utilising
the proxy voting service may do so for the meeting (and any
adjournment thereof) by following the procedures described in the
CREST Manual. CREST Personal Members or other CREST
sponsored members (and those CREST members who have
appointed a voting service provider) should refer to their CREST
sponsor or voting service provider, who will be able to take the
appropriate action on their behalf.
In order for a proxy appointment made by means of CREST to be
valid, the appropriate CREST message (a “CREST Proxy Instruction”)
must be properly authenticated in accordance with CRESTCo’s
specifications and must contain the information required for such
instructions, as described in the CREST Manual. The message
(regardless of whether it relates to the appointment of a proxy or to
an amendment to the instruction given to a previously appointed
proxy) must, in order to be valid, be transmitted so as to be received
by the issuer’s agent (ID “RA10”) by the latest time(s) for receipt of
proxy appointments specified in, or in a note to, the Notice of
Meeting. For this purpose, the time of receipt will be taken to be the
time (as determined by the timestamp applied to the message by the
CREST Applications Host) from which the issuer’s agent is able to
retrieve the message by enquiry to CREST in the manner prescribed
by CREST.
CREST members (and, where applicable, their CREST sponsors or
voting service providers) should note that CREST does not make
available special procedures in CREST for any particular messages.
Normal system timings and limitations will therefore apply in relation
to the input of CREST Proxy Instructions. It is the responsibility of
the CREST member concerned to take (or, if the CREST member is
a CREST personal member or sponsored member or has appointed
a voting service provider, to procure that his CREST sponsor or
voting service provider takes) such action as shall be necessary to
ensure that a message is transmitted by means of the CREST
system by any particular time. In this connection, CREST members
(and, where applicable, their CREST sponsors or voting service
providers) are referred, in particular, to those sections of the CREST
Manual concerning practical limitations of the CREST system and
timings.
The Company may treat as invalid a CREST Proxy Instruction in the
circumstances set out in Regulation 35(5)(a) of the Uncertificated
Securities Regulations 2001.
3. The following documents will be available for inspection at the
Registered Office of the Company during normal business hours on
any business day (Saturdays, Sundays and public holidays excluded)
from the date of this Notice until the close of the meeting and at the
place of the meeting for 15 minutes prior to and during the meeting:
(i) the Register of Directors’ interests kept by the Company under
Section 809 of the Companies Act 2006;
(ii) copies of all service contracts between the Directors and the
Company together with other appropriate documentation;
(iii) copies of the terms and conditions of appointment of the Non-
Executive Directors; and
(iv) copies of the rules of the Johnson Service Group 2018 Long
Term Incentive Plan and the Johnson Service Group 2018 Save
As You Earn Plan.
Copies of the rules of the Johnson Service Group 2018 Long Term
Incentive Plan and the Johnson Service Group 2018 Save As You
Earn Plan are also available for inspection at these times at the
offices of PricewaterhouseCoopers LLP, 7 More London Riverside,
London SE1 2RT.
4. Pursuant to Regulation 41 of the Uncertificated Securities
Regulations 2001, the Company specifies that only those
Shareholders registered in the Register of Members of the Company
as at the close of business on 1 May 2018, or in the event that the
Meeting is adjourned, in the Register of Members at close of
business two days prior to any adjourned meeting, shall be entitled
to attend or vote at the Meeting in respect of the number of shares
registered in their name at the relevant time. Changes to entries on
the Register of Members after the close of business on 1 May 2018
or, in the event that the Meeting is adjourned, after close of business
two days prior to any adjourned meeting, shall be disregarded in
determining the rights of any person to attend or vote at the
Meeting.
5. As at 26 February 2018 (being the last business day prior to
publication of this notice) the Company’s issued share capital
consists of 366,499,375 Ordinary Shares carrying one vote each.
The total voting rights in the Company as at 26 February 2018 are,
therefore, 366,499,375.
6. Any corporation which is a member can appoint one or more
corporate representatives who may exercise on its behalf all of its
powers as a member provided that they do not do so in relation to
the same shares.
7. Subject to the provisions of section 338 of the Companies Act
2006, members representing at least 5% of the total voting rights of
all members (or at least 100 members who would have the right to
vote at the meeting and who hold shares on which there has been
paid an average sum per member of at least £100) may have the
right to require the Company:
(i) to give, to members of the Company entitled to receive notice of
the meeting, notice of a resolution which may properly be moved
and is intended to be moved at the meeting; and/or
(ii) to include in the business to be dealt with at the meeting any
matter (other than a proposed resolution) which may be properly
included in the business.
A resolution may properly be moved or a matter may properly be
included in the business unless:
(i) (in the case of a resolution only) it would, if passed, be ineffective
(whether by reason of inconsistency with any enactment or the
Company’s constitution or otherwise);
(ii) it is defamatory of any person; or
(iii) it is frivolous or vexatious.
Such a request may be in hard copy form or in electronic form, must
identify the resolution of which notice is to be given or the matter to
be included in the business, must be authenticated by the person or
persons making it, must be received by the Company not later than
6 weeks before the meeting, and (in the case of a matter to be
included in the business only) must be accompanied by a statement
setting out the grounds for the request.
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170435 Johnson Service Group Annual Report Pt7_170435 Johnson Service Group Annual Report Pt7 02/03/2018 21:26 Page 118
118 Johnson Service Group PLC Annual Report and Accounts 2017
NOTICE OF ANNUAL GENERAL MEETING CONTINUED
Explanatory Notes
The following notes give an explanation of the proposed resolutions.
Resolutions 1 to 12 (inclusive) and resolutions 16 and 17 are proposed
as Ordinary Resolutions. This means that for each of those resolutions
to be passed, more than half of the votes cast must be in favour of the
resolution. Resolutions 13 to 15 (inclusive) are proposed as Special
Resolutions. This means that for each of those resolutions to be passed,
at least three-quarters of the votes cast must be in favour of the
resolution.
Your Directors consider the passing of all of the Resolutions to be in the
best interests of the Company and its Shareholders and accordingly
recommend that you vote in favour of these Resolutions as they intend
to do so in respect of their own shareholdings.
Report and Accounts (Resolution 1)
The Directors of the Company must present the accounts to the AGM.
Directors’ Remuneration Report (Resolution 2)
Although, as a company listed on AIM, there is no requirement for the
Board Report on Remuneration to be approved by members, the
Directors believe that it is best practice to do so. It is proposed,
therefore, that the Board Report on Remuneration for the financial year
ended 31 December 2017, as set out on pages 37 to 44 of the
Company’s Annual Report, be approved.
The Board Report on Remuneration contains, inter alia, details of the
Directors who were members of the Remuneration Committee, a
forward looking statement of the Company’s policy on Directors’
remuneration for subsequent financial years, a performance graph
showing the Company’s Total Shareholder Return compared with the
return on the FTSE AIM All-Share Index, the FTSE Support Services
Index and the FTSE Industrial Goods and Services Index, details of the
Directors’ service contracts and specific disclosures relating to each
Director’s remuneration.
Declaration of a Dividend (Resolution 3)
A final dividend can only be paid after the Shareholders at a general
meeting have approved it. A final dividend of 1.9 pence per Ordinary
Share is recommended by the Directors for payment to Shareholders
who are on the Register at the close of business on 13 April 2018. If
approved, the date of payment of the final dividend will be 11 May
2018. An interim dividend of 0.9 pence per Ordinary Share was paid on
3 November 2017.
Election of Directors (Resolutions 4 to 9 inclusive)
Under the Company’s Articles of Association, and in line with the
recommendations of the UK Corporate Governance Code (the “Code”)
for non-FTSE 350 companies, all Directors are required to retire and
submit themselves for re-election every three years and all newly
appointed Directors are required to retire and submit themselves for
election at the first AGM following their appointment. Notwithstanding
the provisions of the Articles of Association, in the interests of good
corporate governance, the Directors have resolved that, each year, all
Directors will retire and offer themselves for re-election.
Biographical details of all the Directors offering themselves for re-
election are set out on page 22 of the 2017 Annual Report and are
also available for viewing on the Company’s website (www.jsg.com).
As previously announced on 5 December 2017, Peter Egan, currently
Managing Director of our Johnsons Apparelmaster workwear division
(“Apparelmaster”), will be appointed to the Board of Directors as Chief
Operating Officer (“COO”) with effect from 1 April 2018, ahead of
assuming the role of Chief Executive Officer (“CEO”). Peter is a key
member of the Group's senior management team and has over 25
years of experience in the textile rental sector. He joined JSG in 1998
and has been Managing Director of Apparelmaster since 2014. Peter
has been instrumental in developing Apparelmaster's strategy and
driving its growth, while also actively contributing to the development
and execution of the Group's strategic plan. Following Chris Sander’s
decision to retire as CEO, the Board is delighted to announce Peter as
his successor and anticipates a smooth, well-managed and effective
transition process between Chris and Peter during the coming year. The
Board is confident that Peter will lead the Group through its next stage
of growth, continuing to build long-term shareholder value.
Reappointment of the Auditor (Resolution 10)
The Company is required to appoint the auditor at each general meeting
at which accounts are presented, to hold office until the end of the next
such meeting. Resolution 10, which is recommended by the Audit
Committee, proposes the reappointment of the Company’s existing
auditor, PricewaterhouseCoopers LLP.
Remuneration of the Auditor (Resolution 11)
This Resolution follows best practice in corporate governance by
separately seeking authority for the Audit Committee to determine the
auditor’s remuneration.
Renewal of Directors’ Authority to Allot Securities (Resolution 12)
The Company’s Directors may only allot Ordinary Shares or grant rights
over Ordinary Shares if authorised to do so by Shareholders. The
authority granted at the last AGM under section 551 of the Companies
Act 2006 to allot relevant securities is due to expire at the conclusion of
this year’s AGM. Accordingly, this resolution seeks to grant a new
authority to authorise the Directors to allot shares in the Company or
grant rights to subscribe for, or convert any security into, shares in the
Company and will expire at the conclusion of the next AGM of the
Company in 2019 or, if earlier, the close of business on 1 July 2019.
If passed, the authority granted by the passing of this resolution will be
limited to an aggregate nominal value of £12,216,646 of Ordinary
Shares which represents approximately one third of the Ordinary share
capital in issue as at 26 February 2018 (being the latest practicable
date prior to publication of this Notice).
Other than in respect of allotting Ordinary Shares in order to satisfy
employee share schemes, the Directors have no present intention of
exercising this authority. However, it is considered prudent to maintain
the flexibility that this authority provides. The Company’s Directors
intend to renew this authority annually.
Renewal of General Disapplication of Pre-emption Rights (Resolution 13)
Under section 561(1) of the Companies Act 2006, if the Directors wish
to allot any of the unissued shares or grant rights over shares or sell
treasury shares for cash (other than pursuant to an employee share
scheme) they must in the first instance offer them to existing
Shareholders in proportion to their holdings. There may be occasions,
however, when the Directors will need the flexibility to finance business
opportunities by the issue of shares without a pre-emptive offer to
existing Shareholders. This cannot be done under the Companies Act
170435 Johnson Service Group Annual Report Pt7_170435 Johnson Service Group Annual Report Pt7 02/03/2018 21:27 Page 119
Annual Report and Accounts 2017 Johnson Service Group PLC 119
2006 unless the Shareholders have first waived their pre-emption
rights.
(i) an acquisition; or
In 2015, the Pre-Emption Group (which represents the Investment
Association and the Pension and Lifetime Savings Association)
published a revised statement of principles for the disapplication of pre-
emption rights (the “Principles”). The Principles relate to issues of equity
securities for cash other than on a pre-emptive basis (i.e. other than pro
rata to existing shareholders) by all companies (wherever incorporated)
with shares admitted to the Premium Listing segment of the Official List
of the UK Listing Authority and to trading on the Main Market for listed
securities of the London Stock Exchange. Certain other companies,
including those with shares admitted to trading on AIM, are encouraged
to adopt the Principles.
The Principles provide that a general authority for the disapplication of
pre-emption rights over approximately 5 per cent of the Company’s
issued ordinary share capital should be treated as routine.
Other than in connection with a rights issues or any other pre-emptive
offer concerning Equity Securities, and subject to the passing of
Resolution 12, this resolution seeks to replace the authority conferred
on the Directors at the 2017 AGM to allot ordinary shares, or grant
rights to subscribe for, or convert securities into, ordinary shares or sell
treasury shares for cash (other than pursuant to an employee equity
incentive share scheme) without application of pre-emption rights. The
authority will be limited to the issue of shares for cash up to a maximum
aggregate nominal value of £1,832,497, which is equivalent to
approximately 5 per cent of the Company’s issued ordinary share capital
as at 26 February 2018 (being the latest practicable date prior to
publication of this Notice).
This resolution also seeks a disapplication of the pre-emption rights on
a rights issue so as to allow the Directors to make exclusions or such
other arrangements as may be appropriate to resolve legal or practical
problems which, for example, might arise with overseas Shareholders.
Shareholders will note that this resolution also relates to treasury shares
and will be proposed as a Special Resolution. If renewed, the authority
will expire at the conclusion of the next AGM of the Company in 2019
or, if earlier, the close of business on 1 July 2019. The Directors intend
to renew this authority annually and confirm their intention to follow best
practice, as set out in the Principles, which provide that usage of this
authority in excess of 7.5 per cent of the Company’s issued ordinary
share capital in a rolling three year period would not take place without
prior consultation with key Shareholders.
General Disapplication of Pre-emption Rights in Connection with an Acquisition or
Specified Capital Investment (Resolution 14)
The Principles further provide that the Company may, as a routine, seek
to disapply pre-emption rights over the equivalent of approximately an
additional 5 per cent of the issued ordinary share capital of the
Company, so long as certain criteria are met. Subject to the passing of
Resolution 12, Resolution 14 seeks to replace the authority conferred
on the Directors at the 2017 AGM (in addition to the authority referred
to above in relation to Resolution 13) to allot ordinary shares, or grant
rights to subscribe for, or convert securities into, ordinary shares or sell
treasury shares for cash (other than pursuant to an employee equity
incentive share scheme) up to an aggregate nominal value of
approximately 5 per cent of the Company’s issued ordinary share capital
without application of pre-emption rights pursuant to section 561 of the
Companies Act 2006, provided that this authority will only be used for
the purpose of:
(ii) a specified capital investment in respect of which sufficient
information regarding the effect of the investment on the Company,
the assets that are the subject of the investment and (where
appropriate) the profits attributable to those assets is made available
to shareholders to enable them to reach an assessment of the
potential return on the investment which is announced
contemporaneously with the issue or which has taken place in the
preceding six month period and is disclosed in the announcement of
the issue.
Other than in connection with a rights, scrip dividend, or other similar
issue, the authority contained in Resolution 14 would be limited to the
issue of shares for cash up to a maximum aggregate nominal value of
£1,832,497 (which includes the sale on a non pre-emptive basis of any
shares held in treasury), which is equivalent to approximately 5 per cent
of the Company’s issued ordinary share capital as at 26 February 2018
(being the latest practicable date prior to the publication of this Notice).
If approved, the authority will expire at the conclusion of the next AGM
of the Company in 2019 or, if earlier, the close of business on 1 July
2019. The Directors intend to renew this authority annually.
Renewal of Company’s authority to purchase Ordinary Shares (Resolution 15)
In certain circumstances it may be advantageous for the Company to
purchase its own shares and this resolution seeks the authority from
Shareholders to continue to do so. Authority was given to the Company
to make market purchases up to an aggregate of 36,522,477 of its
Ordinary Shares at the AGM held on 4 May 2017 (being equal to
approximately 10 per cent of the Company’s issued ordinary share
capital as at 27 February 2017, the latest practicable date prior to the
publication of the notice for the AGM held on 4 May 2017). This
authority is due to expire at the end of the AGM and it is proposed that
the Company be authorised to continue to make market purchases up
to an aggregate of 36,649,937 Ordinary Shares, representing
approximately 10 per cent of the Company’s issued ordinary share
capital as at 26 February 2018, being the latest practicable date prior to
the publication of this Notice.
Renewing the authority for the Company to purchase Ordinary Shares in
the market is intended to allow your Board to take advantage of
opportunities that may arise to increase Shareholder value. The
Directors will exercise this power only when, in the light of market
conditions prevailing at the time, they believe that the effect of such
purchases will be to increase earnings per share and will be likely to
promote the success of the Company for the benefit of its members as
a whole. Other investment opportunities, appropriate gearing levels and
the overall position of the Company will be taken into account when
exercising this authority. The price paid for shares will not be less than
the nominal value of 10p per share nor more than 5% above the
average of the middle market quotation of the Company’s Ordinary
Shares as derived from the London Stock Exchange Daily Official List
for the five business days immediately preceding the day on which the
shares are purchased.
The Company may hold in treasury any of its own shares that it
purchases pursuant to the Companies Act 2006 and the authority
conferred by this resolution. This gives the Company the ability to
reissue treasury shares quickly and cost-effectively and provides the
Company with greater flexibility in the management of its capital base. It
also gives the Company the opportunity to satisfy employee share
scheme awards with treasury shares. The total number of options to
subscribe for Ordinary Shares that were outstanding at 26 February
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120 Johnson Service Group PLC Annual Report and Accounts 2017
NOTICE OF ANNUAL GENERAL MEETING CONTINUED
Adoption of the 2018 SAYE (Resolution 17)
The Company established the Johnson Service Group plc Sharesave
Plan (the “2008 SAYE”), an all employee save-as-you-earn plan, in
2008. Options may only be granted under the 2008 SAYE until 16 June
2018. This resolution proposes the establishment of 2018 SAYE on
substantially the same terms as the 2008 SAYE in order for the
Company to be able to continue to grant SAYE options under this all
employee arrangement after this date.
The 2018 SAYE is a UK tax-advantaged all employee plan and as such
its terms are constrained by the conditions required for tax-advantaged
status. The terms of the rules of the 2018 SAYE are therefore similar to
those of the 2008 SAYE, save for reflecting changes in tax law since
the 2008 SAYE was introduced.
The 2008 SAYE will continue in force in relation to SAYE options which
have previously been granted under that plan and which remain
outstanding.
A summary of the principal features of the rules of the 2018 SAYE is
set out in Appendix 2 to this notice of Annual General Meeting.
2018 (being the latest practicable date prior to publication of this
Notice) was 6,613,786. The proportion of issued share capital that they
represented at that time was 1.8 per cent and the proportion of issued
share capital that they will represent if the full authority to purchase
shares (existing and being sought) is used is 2.0 per cent. Once held in
treasury, the Company is not entitled to exercise any rights, including the
right to attend and vote at meetings in respect of shares. Further, no
dividend or other distribution of the Company’s assets may be made to
the Company in respect of the treasury shares.
The Directors have no present intention of purchasing Ordinary Shares
in the market. The authority given under this Resolution will lapse, unless
renewed, at the conclusion of the next AGM of the Company in 2019,
or, if earlier, the close of business on 1 July 2019. It is the present
intention of the Directors to seek renewal of this authority annually.
Adoption of the 2018 LTIP (Resolution 16)
The Company established the Johnson Service Group 2009 Long-Term
Incentive Plan (the “2009 LTIP”), a discretionary share plan under which
the Company makes share awards to executives and senior
management, in 2009. Awards may only be granted under the 2009
LTIP until 4 July 2018. This resolution proposes the establishment of
the 2018 LTIP on substantially the same terms as the 2009 LTIP in
order for the Company to be able to continue to operate its executive
and senior management incentive arrangements after this date.
As with the 2009 LTIP, the 2018 LTIP comprises an “unapproved”
section, under which nil cost awards are made, and a “CSOP” section
under which UK tax-advantaged market value options are awarded and
which are linked to the nil cost awards such that the total value delivered
under both awards is never more than would be delivered under the nil
cost awards alone. The use of the CSOP section allows the potential for
tax favoured treatment for participants in the 2018 LTIP.
In addition to updating the CSOP section to take account of changes in
tax law since the 2009 LTIP was introduced, malus and clawback
provisions have been added to the rules of the 2018 LTIP, to reflect the
fact that such provisions have been applicable to LTIP awards granted
by the Company from 2015. In addition, to take into account potential
future developments in best practice, the rules of the 2018 LTIP contain
provisions which allow the remuneration committee of the Company to
require that shares acquired from vesting LTIP awards must be retained
for a prescribed period post vesting. The remuneration committee’s
intention, subject to shareholder approval of the 2018 LTIP, is that the
first grant of awards under the 2018 LTIP, which will be made in or
around March 2019, will be subject to such a holding period.
The Company intends to grant awards for the last time under the 2009
LTIP in or around March 2018. The 2009 LTIP will then continue in
force in relation to LTIP awards which have previously been granted
under that plan and which remain outstanding.
A summary of the principal features of the rules of the 2018 LTIP is set
out in Appendix 1 to this notice of Annual General Meeting.
170435 Johnson Service Group Annual Report Pt7_170435 Johnson Service Group Annual Report Pt7 02/03/2018 21:27 Page 121
Annual Report and Accounts 2017 Johnson Service Group PLC 121
4. Holding period
At its discretion, the Remuneration Committee may grant LTIP Awards
subject to a holding period following vesting.
5. Performance targets and other conditions
The Remuneration Committee may impose performance targets on the
vesting of LTIP Awards. Any performance target applying to LTIP
Awards may be adjusted or waived if an event occurs which causes the
Remuneration Committee, acting fairly and reasonably, to believe that it
is no longer a fair target. A performance target cannot be adjusted so
that it is more difficult to satisfy. The Remuneration Committee may also
impose other terms and conditions on the vesting of LTIP Awards.
6. Malus
LTIP Awards will be subject to malus and clawback unless, exceptionally,
the Remuneration Committee determines otherwise at the time of grant.
The Remuneration Committee may decide, at the vesting of LTIP
Awards or at any time before, that the number of Ordinary Shares
subject to an LTIP Award shall be reduced (including to nil) on such
basis that the Remuneration Committee in its discretion considers to be
fair and reasonable in the following circumstances:
➔ discovery of a material misstatement resulting in an adjustment in the
audited accounts of the Company,
➔ discovery that the assessment of any performance target or condition
in respect of an LTIP Award was based on error, or inaccurate or
misleading information,
➔ a material failure of risk management by any Group company;
➔ events or the behaviour of a participant have had a significant
detrimental impact on the reputation of any Group company provided
that the Remuneration Committee is satisfied that the relevant
participant was responsible for the reputational damage and that the
reputational damage is attributable to him.
7. Vesting and exercise
LTIP Awards will normally vest, and LTIP Options and LTIP CSOP
Options will normally become exercisable, on the third anniversary of the
date of grant of the LTIP Award to the extent that any applicable
performance targets have been satisfied and to the extent permitted
following any operation of malus. LTIP Options and LTIP CSOP Options
will normally remain exercisable for a period determined by the
Remuneration Committee at grant which shall not exceed 10 years
from grant.
8. Clawback
The Remuneration Committee may apply clawback to all or part of a
participant’s LTIP Award in substantially the same circumstances as
apply to malus (as described above) during the period of two years
following the vesting of an Award. Clawback may be effected, among
other means, by requiring the transfer of Ordinary Shares, payment of
cash or reduction of awards.
9. Cessation of employment
Except in certain circumstances, set out below, an LTIP Award will lapse
immediately upon a participant ceasing to be employed by or holding
office with the Group.
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Appendix 1 – Summary of the principal features of The Johnson Service
Group 2018 Long-Term Incentive Plan (the “LTIP”)
1. Status
The LTIP is a discretionary executive share plan. Under the LTIP, the
remuneration committee of the Company (the “Remuneration
Committee”) may, within certain limits and subject to any applicable
performance targets, grant to eligible employees (i) nil cost options over
Ordinary Shares (“LTIP Options”) and/or (ii) conditional awards (i.e. a
conditional right to acquire Ordinary Shares) (“LTIP Conditional
Awards”). The LTIP also contains a sub-plan which permits the grant of
options (“LTIP CSOP Options”, and together with LTIP Options and
LTIP Conditional Awards, “LTIP Awards”) over Ordinary Shares meeting
the requirements of a company share option plan (“CSOP” ) for the
purposes of Schedule 4 of the Income Tax (Earnings and Pensions) Act
2003. The provisions of the LTIP apply to LTIP CSOP Options subject to
and insofar as permitted by the applicable requirements of the CSOP
legislation. No payment is required for the grant of an LTIP Award.
2. Eligibility
All employees (including Executive Directors) of the Company’s group
of companies (the “Group”) are eligible for selection to participate in the
LTIP at the discretion of the Remuneration Committee.
3. Grant of LTIP Awards
The Remuneration Committee may grant LTIP Awards over Ordinary
Shares to eligible employees with a maximum total market value in any
year of up to such limits as the Remuneration Committee may specify
from time to time, or in excess of any such limit with the prior approval
of the Remuneration Committee, which will normally be limited to
circumstances involving the recruitment of a senior employee.
The sub-plan to the LTIP permits the grant of LTIP CSOP Options over
Ordinary Shares with a total market value of up to the permitted limit
from time to time applying to options granted under a CSOP (currently
£30,000).
Where an employee is granted an LTIP Option, he may also be granted
an LTIP CSOP Option over further Ordinary Shares up to the permitted
limit applicable to options granted under a CSOP (see above). The
exercise price payable for each Ordinary Share subject to an LTIP
CSOP Option shall be determined by the Remuneration Committee and
shall not be less than the market value of an Ordinary Share determined
in accordance with the requirements of the applicable CSOP legislation.
The number of Ordinary Shares under the LTIP Option which may be
exercised will be reduced by such number of Ordinary Shares as has a
market value (as at the date of exercise of the LTIP CSOP Option)
equal to the gain made on the exercise of the LTIP CSOP Option.
Overall the economic gain from the LTIP Option before tax is the same
as if the LTIP CSOP Option was not in place.
LTIP Awards may be granted at any time the Remuneration Committee
thinks appropriate, subject to any dealing restrictions, and will normally
only be granted during the 42 days beginning on the day after any of
the following: (i) the date of adoption of the LTIP; (ii) the announcement
of the Company’s results for any period; (iii) the date of any general
meeting of the Company; (iv) the date on which any change to the
legislation affecting the LTIP is proposed or made; (v) the date on which
the Board determines that circumstances are sufficiently exceptional to
justify the making of the LTIP Award at that time; or (vi) the date of the
lifting of any dealing restrictions which prevented the grant of LTIP
Awards.
However, no LTIP Awards may be granted more than 10 years from the
date when the LTIP is adopted.
170435 Johnson Service Group Annual Report Pt7_170435 Johnson Service Group Annual Report Pt7 02/03/2018 21:27 Page 122
122 Johnson Service Group PLC Annual Report and Accounts 2017
NOTICE OF ANNUAL GENERAL MEETING CONTINUED
However, if a participant so ceases because of his ill-health, injury,
disability, redundancy, retirement, the participant being employed by a
company which ceases to be a Group company or being employed in an
undertaking which is transferred to a person who is not a Group
company or in other circumstances at the discretion of the
Remuneration Committee (each an “LTIP Good Leaver Reason”), his
LTIP Award will ordinarily vest on the date when it would have vested if
he had not so ceased to be a Group employee, subject to the
satisfaction of any applicable performance targets measured over the
original performance period and the operation of malus or clawback. In
addition, vesting may be pro-rated to reflect the reduced period of time
between grant and the participant’s cessation of employment as a
proportion of the normal vesting period.
If a participant ceases to be a Group employee for an LTIP Good Leaver
Reason, the Remuneration Committee can alternatively decide that his
LTIP Award will vest early when he leaves. If a participant dies, a
proportion of his LTIP Award will normally vest on the date of his death.
The extent to which an LTIP Award will vest in these situations will be
determined by the Remuneration Committee taking into account the
extent to which any applicable performance targets have been satisfied
at the date of cessation of employment and the operation of malus or
clawback. In addition, vesting may be pro-rated to reflect the reduced
period of time between grant and the participant’s cessation of
employment as a proportion of the normal vesting period.
To the extent that LTIP Options and LTIP CSOP Options vest for an
LTIP Good Leaver Reason, they may be exercised for a period of 6
months following vesting or, if exercise is prevented at the date of
vesting due to dealing restrictions, 6 months following the lifting of such
restrictions (or such longer period as the Remuneration Committee
determines) and will otherwise lapse at the end of that period. To the
extent that LTIP Options and LTIP CSOP Options vest following death
of a participant, they may normally be exercised for a period of 12
months following death and will otherwise lapse at the end of that
period.
10. Corporate events
In the event of a takeover, scheme of arrangement, winding-up of the
Company, or the Company disposing of all of its businesses, the LTIP
Awards will vest early. The proportion of the LTIP Awards which vest
shall be determined by the Remuneration Committee taking into
account, among other factors, the extent to which any applicable
performance targets have been satisfied at that time and the proportion
of the normal vesting period that has elapsed.
To the extent that LTIP Options and LTIP CSOP Options vest in the
event of a takeover, scheme of arrangement or the Company disposing
of all of its businesses, they may be exercised for a period of six months
measured from the relevant event and will otherwise lapse at the end of
that period unless, in the case of a disposal of all of the Company’s
businesses, the Remuneration Committee determines that a longer
period for exercise should apply. To the extent that such vesting is on a
winding up, LTIP Options and LTIP CSOP Options will lapse on
completion of the winding up.
If there is a corporate event resulting in a new person or company
acquiring control of the Company, the Remuneration Committee may
(with the consent of the acquiring company) alternatively decide that
LTIP Awards will not vest or lapse but will be replaced by equivalent new
awards over shares in the new acquiring company.
11. Awards not transferable
LTIP Awards are not transferable other than to the participant’s personal
representatives in the event of his death.
12. Limits
The LTIP may operate over new issue Ordinary Shares, treasury
Ordinary Shares or Ordinary Shares purchased in the market. The rules
of the LTIP provide that, in any period of 10 calendar years, not more
than 10% of the Company’s issued ordinary share capital may be
issued under the LTIP and under any other employees’ share scheme
operated by the Company. Ordinary Shares issued out of treasury under
the LTIP will count towards these limits for so long as this is required
under institutional shareholder guidelines. Awards which are renounced
or lapse shall be disregarded for the purposes of these limits.
13. Variation of capital
If there is a variation of share capital of the Company the Remuneration
Committee may make such adjustments to LTIP Awards, including the
number of Ordinary Shares subject to LTIP Awards and the option
exercise price (if any), as it considers to be fair and reasonable.
14. Dividend equivalents
In respect of any LTIP Option or LTIP Conditional Award, the Board may
decide that participants will receive a payment (in cash and/or additional
Ordinary Shares) equal in value to any dividends that would have been
paid on the Ordinary Shares which vest under that LTIP Award by
reference to the period between the time when the LTIP Award was
granted and the time when it vested.
15. Rights attaching to Shares
Shares issued and/or transferred under the LTIP will not confer any
rights on any participant until the relevant LTIP Conditional Award has
vested or the relevant LTIP Option or LTIP CSOP Option has been
exercised and the participant in question has received the underlying
Ordinary Shares. Any Ordinary Shares allotted when an LTIP Option or
LTIP CSOP Option is exercised or an LTIP Conditional Award vests will
rank equally with Ordinary Shares then in issue (except for rights arising
by reference to a record date prior to their issue).
16. Amendments
The Board may, at any time, amend the provisions of the LTIP in any
respect. The prior approval of the Company in general meeting must be
obtained in the case of any amendment to the advantage of participants
which is made to the provisions relating to eligibility, overall limits, the
price payable for Ordinary Shares, the persons to whom an award can
be made under the LTIP or the adjustments that may be made in the
event of any variation to the share capital of the Company, and / or the
rule relating to such prior approval, save that there are exceptions for
any minor amendment to benefit the administration of the LTIP, to take
account of the provisions of any proposed or existing legislation or to
obtain or maintain favourable tax, exchange control or regulatory
treatment for participants, the Company and/or its other Group
companies. Amendments may not normally materially adversely affect
the rights of participants except where participants are notified of such
amendment and the majority of participants approve such amendment.
17. Overseas plans
The Board may, at any time, establish further plans based on the LTIP
for overseas territories. Any such plan shall be similar to the LTIP, but
modified to take account of local tax, exchange control or securities
laws. Any Ordinary Shares made available under such further overseas
plans must be treated as counting against the limits on individual and
overall participation under the LTIP.
18. Benefits not pensionable
The benefits received under the LTIP are not pensionable.
170435 Johnson Service Group Annual Report Pt7_170435 Johnson Service Group Annual Report Pt7 02/03/2018 21:27 Page 123
Annual Report and Accounts 2017 Johnson Service Group PLC 123
Appendix 2 – Summary of the principal features of The Johnson Service
Group 2018 Save As You Earn Plan (the “SAYE”)
1. Status
The SAYE is an all-employee savings related share option plan which
has been designed to meet the requirements of Schedule 3 of the
Income Tax (Earnings and Pensions) Act 2003 so that Ordinary Shares
can be acquired by UK employees in a tax-efficient manner.
2. Eligibility
Each time that the Board decides to operate the SAYE, all UK resident
tax-paying employees of the Company and its subsidiaries participating in
the SAYE must be offered the opportunity to participate. Other employees
may be permitted to participate. Participants invited to participate must
have completed a minimum qualifying period of employment (which may
be up to 5 years) before they can participate, as determined by the Board
in relation to any award of an option under the SAYE.
3. Savings contract and grant of option
In order to participate in the SAYE, an employee must enter into a linked
savings contract with a bank or building society to make contributions
from salary on a monthly basis over a three or five year period. A
participant who enters into a savings agreement is granted an option to
acquire Ordinary Shares under the SAYE (“SAYE Option”).
The number of Ordinary Shares over which a SAYE Option may be
granted is limited to the number of Ordinary Shares that may be
acquired at the SAYE Option exercise price out of the proceeds of the
linked savings contract. The exercise price per Ordinary Share shall be
the amount determined by the Board which shall not be less than 80%
(or such other percentage as is permitted by the applicable legislation)
of the market value of an Ordinary Share at the date of invitation.
Contributions may be made between £5 a month and the maximum
permitted under the applicable legislation (currently £500 a month) or
up to such lesser sum as the Board may determine. At the end of the
three or five year savings contract, employees may either withdraw their
savings on a tax free basis or utilise such sum and any bonus or interest
due under the savings contract to acquire Ordinary Shares under the
linked option granted to the participant under the SAYE.
Invitations may be issued at any time the Board thinks appropriate, subject
to any dealing restrictions, and will normally only be issued during the 42
days beginning on: (i) the date of adoption of the SAYE; (ii) the day after
the announcement of the Company’s results for any period; (iii) any day on
which a new SAYE savings contract is announced or comes into force (iv)
any day on which the Board determines that circumstances are
sufficiently exceptional to justify the grant of an option at that time; or (v)
the day after the lifting of any dealing restrictions which prevented the
issue of invitations at the preceding times.
However, no SAYE Options may be granted more than 10 years from
the date when the SAYE is adopted.
SAYE Options are not transferable and may only be exercised by the
relevant employee or in the event of death their personal representatives.
4. Limits
The SAYE may operate over new issue Ordinary Shares, treasury
Ordinary Shares or Ordinary Shares purchased in the market. The rules
of the SAYE provides that, in any period of 10 calendar years, not more
than 10% of the Company’s issued ordinary share capital may be
issued under the SAYE and under any other employees’ share scheme
operated by the Company. Ordinary Shares issued out of treasury under
the SAYE will count towards these limits for so long as this is required
under institutional shareholder guidelines. Awards which are renounced
or lapse shall be disregarded for the purposes of these limits.
5. Exercise of SAYE Options
SAYE Options may generally only be exercised for a period of six months
following the maturity of the related savings contract. If not exercised by
the end of this period, the relevant SAYE Options shall lapse.
SAYE Options may be exercised earlier with the proceeds of savings
made under the linked savings contract and any interest due in certain
specified circumstances including death, retirement, cessation of
employment due to injury, disability or redundancy, by reason of a
relevant transfer within the meaning of the Transfer of Undertakings
(Protection of Employment) Regulations 2006 or, if the relevant
employment is employment by an associated company, by reason of a
change of control or other circumstances ending that company’s status
as an associated company.
6. Corporate events
In the event of a takeover, scheme of arrangement, or winding-up of the
Company, SAYE Options may normally be exercised early with the
proceeds of savings made under the linked savings contract and any
interest due.
If there is a corporate event resulting in a new person or company
acquiring control of the Company SAYE Options may in certain
circumstances be replaced by equivalent new options over shares in the
acquiring company.
7. Variation of capital
If there is a variation of share capital of the Company, the Board may
make such adjustments to SAYE Options, including the number of
Ordinary Shares subject to SAYE Options and the SAYE Option
exercise price, as it considers to be fair and reasonable.
8. Rights attaching to Ordinary Shares
Ordinary Shares issued and/or transferred under the SAYE will not
confer any rights on any participant until the relevant SAYE Option has
been exercised and the participant in question has received the
underlying Ordinary Shares. Any Ordinary Shares allotted when a SAYE
Option is exercised will rank equally with Ordinary Shares then in issue
(except for rights arising by reference to a record date prior to their issue).
9. Amendments
The Board may, at any time, amend the provisions of the SAYE in any
respect. The prior approval of the Company in general meeting must be
obtained in the case of any amendment to the advantage of participants
which is made to the provisions relating to eligibility, individual or overall
limits, the persons to whom a SAYE Option can be granted, the price at
which Ordinary Shares can be acquired on exercise of a SAYE Option, the
adjustments that may be made in the event of any variation to the share
capital of the Company and/or the rule relating to such prior approval,
save that there are exceptions for any minor amendment to benefit the
administration of the SAYE, to take account of the provisions of any
proposed or existing legislation or to obtain or maintain favourable tax,
exchange control or regulatory treatment for participants, the Company
and/or its other companies in its group. Amendments may not adversely
affect the rights of participants except where participants are notified of
such amendment and the majority of participants approve such
amendment.
10. Overseas plans
The Board may, at any time, establish further plans based on the SAYE
for overseas territories. Any such plan shall be similar to the SAYE, as
relevant, but modified to take account of local tax, exchange control or
securities laws. Any Ordinary Shares made available under such further
overseas plans must be treated as counting against the limits on
individual and overall participation under the SAYE.
11. Benefits not pensionable
The benefits received under the SAYE are not pensionable.
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170435 Johnson Service Group Annual Report Pt7_170435 Johnson Service Group Annual Report Pt7 02/03/2018 21:27 Page 124
Advisors
Nominated Advisor, Financial Advisor and Stockbrokers
Investec Investment Banking
2 Gresham Street
London
EC2V 7QP
Bankers
Lloyds Bank plc
40 Spring Gardens
Manchester
M2 1EN
The Royal Bank of Scotland plc
2-8 Church Street
Liverpool
L1 3BG
Santander UK plc
298 Deansgate
Manchester
M3 4HH
Lawyers
Hill Dickinson LLP
No1 St Paul’s Square
Liverpool
L3 9SJ
Registrar and Transfer Office
Link Asset Services
34 Beckenham Road
Beckenham
BR3 4ZF
Independent Auditor
PricewaterhouseCoopers LLP
Chartered Accountants and Statutory Auditors
1 Hardman Square
Manchester
M3 3EB
124 Johnson Service Group PLC Annual Report and Accounts 2017
DIRECTORS AND ADVISORS
Directors
Paul Stephen Moody
Non-Executive Chairman
Chairman of Nomination Committee
Member of Remuneration Committee
Member of Audit Committee
Christopher Sander
Chief Executive Officer
Director responsible for Health, Safety and the Environment
Yvonne May Monaghan BSc (Hons), FCA
Chief Financial Officer
William Mervyn Frew Carey Shannon CA
Senior Independent Non-Executive Director
Chairman of Audit Committee
Member of Remuneration Committee
Member of Nomination Committee
Nicholas Mark Gregg
Independent Non-Executive Director
Chairman of Remuneration Committee
Member of Audit Committee
Member of Nomination Committee
Company Secretary & Group Financial Controller
Timothy James Morris BA (Hons), FCA
Registered Office
Johnson House
Abbots Park
Monks Way
Preston Brook
Cheshire
WA7 3GH
FINANCIAL CALENDAR
Results for the year
Announced in February 2018
Results for the half year
Announced in September 2018
Annual General Meeting
To be held on 3 May 2018
Dividend payment dates
Interim 2017:
Proposed Final 2017:
Interim 2018:
3 November 2017
11 May 2018
November 2018
170435 Johnson Annual Report Cover 12mm spine_170435 Johnson Annual Report Cover 12mm spine 02/03/2018 22:02 Page 2
Johnson Service Group PLC Annual Report and Accounts 2017
Annual Report and Accounts 2011 Johnson Service Group PLC 2
Annual Report and Accounts 2017 Johnson Service Group PLC
THE LEADING NAME IN
TEXTILE RENTAL
Design: mediasterling.com
Production: sterlingfp.com
This annual report is printed using vegetable
inks on paper from an ISO 14001 certified
manufacturer, and is made with ECF pulp
sourced from carefully managed and
renewed forests.
Electronic Communications
The Company offers Shareholders the
opportunity to receive communications such as
notices of Shareholder meetings and the annual
report and accounts electronically. The Company
encourages the use of electronic communication
as, not only does it save the Company printing
and mailing costs, it is also a more convenient
and prompt method of communication.
If you decide to receive communications
electronically, you will be sent an email message
each time a new Shareholder report or notice
of meeting is published. The email will contain
links to the appropriate website where
documents can be viewed. It is possible
to change your instruction at any time by
amending your details on the register.
If you would like to receive electronic
communications, you will need to register your
email address by accessing the Shareholder
Services page within the Investor Relations
section of the Company’s website at
www.jsg.com.
This will link you to the service offered by the
Company’s Registrar. If you decide not to register
an email address with the Registrar, you will
continue to receive all communications in hard
copy form.
Those Shareholders who are CREST members
and who wish to appoint a proxy or proxies
utilising the proxy voting service please refer to
Note 2 of the Notice of Annual General Meeting.
www.jsg.com
If you have any queries regarding electronic communications, please contact the
Company’s registrar, Link Asset Services, on 0871 664 0300 (calls cost 10p per
minute plus network extras, lines are open 8.30am-5.30pm Mon-Fri).
170435 Johnson Annual Report Cover 12mm spine_170435 Johnson Annual Report Cover 12mm spine 02/03/2018 22:02 Page 1
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1
7
Johnson House,
Abbots Park, Monks Way
Preston Brook
Cheshire WA7 3GH
Tel:
+44 (0)1928 704 600
Fax: +44 (0)1928 704 620
Email: enquiries@jsg.com
Annual Report
and Accounts
2017