Johnson Service: A template for meltdown
Posted on May 21, 2008 by Richard Beddard
Filed Under Companies |
I’m scripting Johnson Service (JSG) for iBall. If you read last week’s post (The six cheapest stocks in May), you’ll know why I think it’s interesting. Major director buys might signal a turning point for the odd agglomeration of dry cleaning, clothing rental and facilities management companies.
One way to detect a pattern, is to list out the key developments. If nothing else, it’s salutary reading, lest a company you own experiences the drip-drip-drip of collapsing ambition, rising costs, falling margins, resignations, dividend cuts, write-offs, profit warnings, refinancing and ultimately dramatic recovery, or insolvency.
- 10 March 2005 Johnson Service closes at a high of 476p. The dry cleaning company is refocusing on business to business services and expecting faster growth and long-term contracts.
- 13 March 2006 Results for year to 31 December 2005. Eight acquisitions in one year mark the height of Johnson’s acquisition effort. Meanwhile sales are down at the dry cleaners.
- 21 July 2006 The dry cleaning business up for auction, just two years after buying Sketchley from Timpson.
- 13 September 2006 Interim results. Underlying debt is rising as the company rolls out the Enterprise Resource Planning system that will help managers run their many businesses. While it’s winning new business, increased costs and delayed contract renewals reduce margins.
- 20 November 2006 Profit warning. The implementation of the ERP system reveals that Stalbridge Linen is losing money, and delays in invoicing due to the new system mean its losing even more.
- 20 November 2006 In the same announcement the company gives up on selling its dry cleaning division, for lack of decent officers and also on…
- 20 November 2006, chief executive Stuart Graham resigns, saying:
- 28 November 2006 David Toon, director of Rental and Corporatewear resigns.
- 19 December 2006 Johnson sells Johnson Hospitality Services taking a loss of £10.2m
- 23 March 2007 Results for year to 31 December 2006. Losses at Stalbridge Linen reduce overall profitability.
- 16 April 2007 Charles Skinner joins as chief executive and starts a strategic review of the group.
- 11 May 2007 Simon Moate, director of Facilities Management, resigns to join office2office (OFF).
- 14 August 2007 Financial director Jim Wilkinson leaves, he’s replaced by Yvonne Monaghan, a Johnson lifer.
- 10 September 2007 Interim results. Board cuts interim dividend to 3p a share from 4.6p the previous year and reports on lower profits at Johnson Facilities Management and losses at ‘non-core’ Alex Reid, and Stalbridge Linen Services.
- 8 November 2007 Unable to find buyers for its underperforming businesses, the company says it has started negotiating with its banks because it expects to breach its current agreement.
- 30 November 2007 The company declares it will not pay its previously declared dividend. because of its funding problems.
- 28 December 2007 Charles Skinner, the chief-executive who joined eight months earlier, is replaced by John Talbot a restructuring expert, because:
- 20 March 2008 Johnson Service closes at a low of 13.75p.
- 11 April 2008 The board Proposes the sale of Johnson Clothing (later approved at an EGM) for about £82m. It’s a sale at last, but Johnson Clothing is one of its most profitable divisions. The money will pay off some of its debt but, should shareholders vote against the sale, the company warns:
- 11 April 2008 In the same document, the company announces it has negotiated a £140m debt facility. JSG will pay more interest if it hasn’t sold Johnson Clothing by 31 May or if it has not raised £25m by 31 March 2009 in an equity issue. Until Johnson raises more cash from shareholders it cannot pay a dividend and the lenders can appoint an observer to Johnson’s board.
- 11 April 2008 Also in the same document Johnson announces it will to move from the main market to AIM, thereby saving money. Shareholders approved the move earlier this month.
- 29 April 2008 Results for year to 31 December 2007. Massive write downs including £16.7m in restructuring costs and another £16.7m on the scrapped ERP system turn a reduced pre-tax profit of about £18m into a pre-tax loss of more than £50m.
- 30 April 2008 Various directors including chairman, Simon Sherrard (chairman), John Talbot (interim chief executive) and Yvonne Monaghan (finance director) buy shares at a shade over 21p. Mr Talbot invests over £135,000.
- 15 May 2008 Director, Kevin Elliott buys nearly £40,000 of Johnson Service shares at 30p.
…I feel it now needs a different skill set to lead the Company into the future.
…a different set of skills are required in the Company’s current situation
…an event of default under the new facilities [see next bullet] will be triggered
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[...] Old friend Johnson Service (JSG), a shrinking mini-conglomerate whose most visible business may be its dry cleaning chain, published its annual report last month. A year ago, I described its gradual meltdown: [...]