Johnson talks to banks after nearly breaching covenants

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The Independent Online

The dry-cleaning and industrial laundry company Johnson Service is in talks with its banks after coming close to breaching existing covenants in its banking agreement.

Shares in the company have been in freefall since Johnson Service issued a profits warning last week. Yesterday, the stock took a further 30 per cent hit in early trading but recovered a little to close 20 per cent down after a statement to the Stock Exchange revealed the board was "in constructive talks" with the company's banks. Its shares ended the day 19.25p down at 78.5p.

Johnson has been trying to sell its three non-core units – hotel supplier Stalbridge Linen Services, Workplace Engineering and specialist dry cleaner Alex Reid – as part of a wider restructuring of the group. However, poor trading at the units has made finding a buyer difficult.

"The board has no intention of selling any of these businesses at a value which the board would not consider to be in the group's interest," the company said yesterday. "Consequently the board now considers that there are limited prospects of receiving any sales proceeds in respect of these businesses during 2007."

The company, which operates Johnson Cleaners and Jeeves of Belgravia and can traces its origins back to the textile industry of 1780, added that profits for 2008 will be broadly the same as those for 2007. One analyst said shares had been falling as there had not been a clear indication of where profits would be following last week's profit warning. "Now they have delivered some indication that they will be in line with last year at £19m," he added.

In September, the company reported pre-tax losses for the six months to 30 June of £13.8m. That was following a write-down of £15.9m on the value of a new IT system and £3.6m from linen stocks at Stalbridge.

Charles Skinner, the chief executive, and the chairman, Simon Sherrard, are working on a turnaround strategy.