Johnson waits to clean up

INVESTMENT COLUMN

Johnson Group Cleaners' half-year results split cleanly down the middle - a dreadful year in the high street dry cleaning operation offset by a strong performance at the workwear rental arm, to give underlying interim figures as flat as a pancake.

Sliced up another way, the figures showed a good advance in the UK making up for a weak half-year in the US. Johnson's trick is clearly to get all its cyclinders firing at once.

Reported profits were a good deal worse as they included an pounds 863,000 one-off reorganisation charge to appoint a new US chief executive and clear out some of the dead-wood management acquired with purchased businesses. The charge followed a larger one-off in last year's full-year figures to sort out the UK operations, knocking a previously disjointed grouping of regional businesses into a sensible national whole.

After the charge, pre-tax profits fell from pounds 8.2m to pounds 7.2m. Earnings per share of 8.98p (10.4p) easily covered a maintained dividend of 2.8p.

Johnson is the largest dry cleaner in both Britain and the US and it is addressing the question whether to move over to a national brand. The jury is out on whether consumers care about the name above their local dry cleaner - location is the key - or even whether they actively favour the family-owned shop. Plainly, however, there are trading advantages in terms of shared overheads, centralised systems and the ability to take out national advertising campaigns.

Those issues play second fiddle at the moment, however, to the absence of the "feel-good factor". Dry cleaning, it seems, is a late-cycle business - late into recession and slow to recover - so the company is working on the assumption that conditions won't improve for a while. That is a pity because the textile rental side, including this year's Wimbledon to Henley catering business, is going great guns with attractive margins and return on capital.

If the dry cleaning side can recover the 14 per cent trading margin it achieved in the good years (5 per cent this time) profits have a way to go. But on forecasts of pounds 17m this year, the shares, down 14p to 263p, trade on a p/e of 13. Given the patchy trading record and the uncertain consumer spending outlook, that is high enough.