The Investment column: Johnson cleans up its brands

Dry cleaning has been a dull market, despite Sketchley's attempts to inject a little zanyness into the business by combining cleaning with photographic processing. That said, Terry Greer, longstanding chairman of Johnson Group Cleaners, has been doing his best to shake things up at Britain's biggest dry cleaning group.

The early fruits of the three-year turnaround plan unveiled at the end of 1994 by Mr Greer, who is to step down next year, are reflected in yesterday's figures for the half year to 29 June. Pre-tax profits of pounds 9.25m were 29 per cent ahead, for an underlying rise of 16 per cent when the effects of interest, property sales and last year's pounds 863,000 reorganisation costs are stripped out.

The programme to unify the various dry-cleaning brand names under the Johnson banner has seen 100 shops spruced up and converted so far. The company says it is on target to have the rest of the chain of over 600 completed by the end of 1998. The rebranding, along with other initiatives such as a discount scheme, are said to be generating 10 per cent sales increases in the refurbished shops.

Given the operational gearing, around half of that growth should drop through to the bottom line, rising to perhaps three-quarters once the refurbishment costs end. That will come in on top of savings flowing through from last year's cost-cutting moves, worth around pounds 500,000 in a full year.

But the even more encouraging factor in the rise in UK dry-cleaning profits from pounds 2.35m to pounds 2.54m in the half year was signs of improved trading conditions. The near 11 per cent rise in like-for-like sales is the best performance the industry has seen since the beginning of the decade.

More worrying is the continuing competition in UK textile rental, which has formed the backbone of the group in recent years and chipped in operating profits of pounds 5.66m in the latest period. Stripping out last year's acquisition of Stalbridge Linen Services, stated profit growth of 6.7 per cent would have been cut to 1 per cent. Johnson's fat margins, 24 per cent in the half year, are vulnerable to price attack and Granada's Spring Grove Services is thought to be leading the charge.

Elsewhere, the 51 per cent hoist in US dry-cleaning profits substantially reflects savings from last year's head office move. Johnson has yet to prove that it can exploit the full potential of its market leading position in the US.

Profits could reach around pounds 18m this year, putting the shares, up 3p at 304p, on a forward rating of 14. Johnson is never likely to excite - Richard Zerny, the chief executive-elect, has been in charge of UK operations for the past six years - but the shares are worth holding for continued recovery in dry cleaning. Following the Rentokil-BET bid, there could also be further corporate action in textile services.