REG - Johnson Service Grp. - Preliminary Results
07/03/2023 07:00
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RNS Number : 0770S Johnson Service Group PLC 07 March 2023
7 March 2023
AIM: JSG
Johnson Service Group PLC
('JSG' or 'the Group')
Preliminary Results for the Year Ended 31 December 2022
Strong performance and well placed for continued growth
FINANCIAL PERFORMANCE
§ Total revenue increased by 42.1% to £385.7 million (2021: £271.4
million).
§ Organic revenue up 39.0% compared to 2021 and 2.7% compared to 2019.
§ Adjusted EBITDA(1) of £104.9 million (2021: £67.9 million) with a margin
of 27.2% (2021: 25.0%).
§ Adjusted Operating Profit(1) of £41.2 million (2021: £12.7 million).
§ Operating Profit of £33.3 million (2021: £8.4 million).
§ Adjusted Profit before Taxation(2) of £38.2 million (2021: £9.4 million).
§ Profit before Taxation of £30.3 million (2021: £5.1 million).
§ Full year dividend of 2.4 pence (2021: nil).
§ Strong balance sheet and capacity for further investment.
§ Ongoing £27.5 million share buyback programme with £11.4 million deployed
to date.
§ The Board expects the result for 2023 to be in line with market
expectations.
OPERATIONAL HIGHLIGHTS
§ HORECA volumes improved during the year to reach 93% of normal in the final
quarter; we expect volumes to continue to increase through 2023.
§ We continue to build strong relationships and strategic partnerships within
HORECA, with over 23,500 rooms installed in 2022.
§ Workwear customer retention levels remained strong at 94.3%.
§ Price increases and other actions implemented throughout 2022 to help
offset cost inflation.
§ Further mitigating actions are ongoing to offset cost pressures.
§ Acquisition of Regency Laundry Limited on 13 February 2023.
§ New leasehold site secured to expand HORECA capacity in the South East.
SUSTAINABILITY
§ Inaugural Sustainability Report published in August 2022 building on The
Johnsons Way launched in February 2022.
§ Additional water recycling plant at our Cornwall site is currently being
installed.
§ Employee Engagement and Diversity surveys completed.
§ Carbon, water and waste reduction targets set for 2023.
Notes
1 Adjusted EBITDA refers to operating profit before amortisation of
intangible assets (excluding software amortisation), goodwill impairment and
exceptional items (defined as 'Adjusted Operating Profit') plus the
depreciation charge for property, plant and equipment, textile rental items
and right of use assets, plus software amortisation.
2 Adjusted Profit before Taxation refers to Adjusted Operating Profit
less total finance costs.
Peter Egan, Chief Executive Officer of Johnson Service Group, commented:
"The improved performance we are reporting today demonstrates the resilience
of JSG's business model, operational expertise and strength of our
relationships with our customers and business suppliers, alongside the hard
work of our employees.
We have invested £22.4 million in our sites to not only improve productivity
and processes but also to attract and retain employees with enhanced working
environments.
Post the year end we supplemented our organic growth plans with the
acquisition of a luxury hotel linen rental business, in line with our
acquisition strategy, and the signing of a new lease to increase our capacity
in the South East for HORECA. We will continue to assess investment
opportunities which will provide supplementary quality services and earnings
enhancing outcomes.
We are confident that the actions we have taken have placed the Group in a
favourable position as markets continue to recover. After considering the
current economic environment, including the recent, and possibly further,
increases in UK interest rates and the subsequent impact on our cost of
borrowing, the Board expects the result for the year to be in line with market
expectations."
SELL-SIDE ANALYSTS' MEETING
A presentation for sell-side analysts will be held today at 10.30am, details
of which will be distributed by Camarco. A copy of the presentation will be
available on the Company's website (www.jsg.com (http://www.jsg.com) )
following the meeting.
ENQUIRIES
Johnson Service Group PLC
Peter Egan, CEO
Yvonne Monaghan, CFO
Tel: 020 3757 4992/4981 (on the day)
Tel: 01928 704 600 (thereafter)
Investec Investment Banking (NOMAD) Camarco (Financial PR)
David Flin Ginny Pulbrook
Carlton Nelson Rosie Driscoll
Virginia Bull Letaba Rimell
Tel: 020 7597 5970 Tel: 020 3757 4992/4981
CHIEF EXECUTIVE'S OPERATING REVIEW
BASIS OF PREPARATION
Throughout this statement, and consistent with prior years, a number of other
alternative performance measures ('APMs') are used to describe the Group's
performance. APMs are not recognised under UK-adopted international
accounting standards. Whilst the Board uses APMs to manage and assess the
performance of the Group, and believes they are representative of ongoing
trading, facilitate meaningful year on year comparisons, and hence provide
useful information to stakeholders, it is cognisant that they do have
limitations and should not be regarded as a complete picture of the Group's
financial performance. APMs, which include adjusted operating profit,
adjusted profit before taxation, adjusted EBITDA, adjusted EPS, adjusted EPS
excluding super-deduction and adjusted net debt are defined within note 1
(Basis of Preparation) and are reconciled to statutory reporting measures in
notes 2, 5, 8 and 19.
TRADING PERFORMANCE
Revenue
Total revenue for the year to 31 December 2022 increased by 42.1% to £385.7
million (2021: £271.4 million). Organic revenue growth was 39.0% over 2021
and 2.7% higher than 2019, reflecting both a return of volume in hospitality
and price increases implemented throughout the year.
Financial Results
Our 2022 results reflect, albeit to a lessening extent, the continuing impact
that COVID-19 has had on the Group, particularly within our Hotel, Restaurant
and Catering ('HORECA') division, together with the high inflationary
pressures on our cost base, particularly in respect of energy.
Adjusted EBITDA increased by 54.5% to £104.9 million (2021: £67.9 million)
giving a margin of 27.2% (2021: 25.0%). As expected, we saw this improve
from the 24.3% achieved in the first half of the year. Adjusted operating
profit was £41.2 million (2021: £12.7 million), an increase of 224.4%,
whilst adjusted profit before taxation increased by 306.4% to £38.2 million
(2021: £9.4 million). The price increases we have implemented have helped
offset cost increases and these are ongoing into 2023.
The exceptional credit of £0.7 million (2021: exceptional credit of £6.7
million) relates to the receipt of £1.5 million from the insurer relating to
capital items lost in the Exeter fire in 2020 offset by a charge of £0.8
million relating to Exeter site clearance costs.
Statutory operating profit increased to £33.3 million (2021: £8.4 million)
whilst statutory profit before taxation, after amortisation of intangible
assets (excluding software amortisation) of £7.2 million (2021: £11.0
million), goodwill impairment of £1.4 million (2021: £nil) and the
exceptional credits referred to above, increased to £30.3 million (2021:
£5.1 million).
Adjusted diluted earnings per share was 8.0 pence (2021: 2.2 pence) and
includes the benefit of the capital allowances super-deduction which offers
130% first year relief on qualifying capital spend. Excluding the part of
this benefit which is a permanent reduction in the corporation tax charge,
adjusted diluted earnings per share was 7.2 pence (2021: 1.7 pence).
Dividend reflecting confidence in the future
The Board reinstated an interim dividend of 0.8 pence per share at the time of
announcing interim results. We are pleased to recommend a final dividend of
1.6 pence per share, taking the full year dividend to 2.4 pence per share
(2021: nil). Dividend cover was 3 times, based on Adjusted EPS excluding
super-deduction.
Acquisition of Regency Laundry Limited
In line with our stated acquisition strategy, the Group has continued to seek
out and acquire businesses which expand our market coverage and are earnings
enhancing. On 13 February 2023, we completed the acquisition of the entire
issued share capital of Regency Laundry Limited ('Regency') for a cash
consideration of £5.75 million on a debt free, cash free basis and subject to
an adjustment for normalised working capital.
Regency, which has 87 employees and operates from a 26,000 square foot
leasehold processing facility in Corsham, operates in the luxury/bespoke 4 and
5 star hotel market in the South of England and regularly delivers some
200,000 pieces of linen per week to its customers.
This acquisition provides the Group with a presence in the luxury/bespoke
sector of the HORECA market and will continue to operate under the Regency
brand. We plan to expand capacity on site and continue to grow its presence
in this market.
The unaudited revenue of Regency in the year ending 31 December 2022, as
reported in its management accounts, was £6.1 million.
OPERATIONAL REVIEW
Our Businesses
The Group comprises of Textile Rental businesses which trade through a number
of very well recognised brands, servicing the UK's Workwear and HORECA (Hotel,
Restaurant and Catering) sectors. The 'Johnsons Workwear' brand
predominantly provides workwear rental and laundry services to corporates
across all industry sectors. Within HORECA, 'Stalbridge' and 'London Linen'
provide premium linen services to the restaurant, hospitality and corporate
events market and Johnsons Hotel Linen, our high-volume linen business,
primarily serves the corporate independent and budget hotel market. Also
within HORECA, our Northern Ireland business, Lilliput, additionally serves a
number of healthcare customers. In February 2023 we acquired Regency which
will add further to the HORECA business, supplying more luxury/bespoke linen
to the luxury market.
The year began with the continuing impact of COVID-19, particularly in our
HORECA business. As volumes were beginning to recover into the spring we,
like many UK businesses, experienced cost inflation and volatility, most
notably around energy costs. We have continued to manage these and work with
our customers to agree a number of price increases. This is ongoing into 2023.
Attracting new employees is a continuous challenge, and we have completed a
strategic review of our current procedures in certain areas. With a more
collaborative approach to marketing and recruitment, we have improved the
onboarding process with the implementation of new procedures for induction,
training and further learning and development opportunities. This will be
complemented by the successful Johnsons Academy which will continue to provide
a development and succession strategy for our employees. Our learning and
development teams are also actively promoting and supporting the business with
the recruitment of apprentices in various roles across the business. Each
business has conducted a further employment engagement survey in respect of
2022 and the various results are noted later in this report.
Energy
Energy costs (comprising gas, electricity and diesel) have remained highly
volatile throughout the year and continue to be so. Costs for 2022, at
£36.4 million, were significantly higher than the equivalent period in 2019
of £21.6 million and represented 9.4% of revenue (2019: 6.2%).
We have continued our policy of fixing gas and electricity prices and, as at
the end of February 2023, we had fixed over 69% of our anticipated electricity
usage and 80% of our anticipated gas usage for the first half of 2023 and 58%
and 62% for the second half of 2023. In addition, we have hedged 75% of our
anticipated diesel requirement across 2023.
Looking further ahead, we will continue to lock in prices as opportunities
allow. For 2024, we currently have, based on our anticipated usage, 24% gas,
41% electricity and 50% diesel at fixed prices, with reducing amounts into
2025.
Workwear Division
Operating as Johnsons Workwear, we provide workwear rental and laundry
services to some 36,000 customers in the UK, ranging from small local
businesses to the largest companies covering food related and other industrial
sectors.
The total revenue for the Workwear division increased by 4.4% to £134.6
million (2021: £128.9 million). Organic revenue increased by 3.7%.
Adjusted EBITDA was £46.6 million (2021: £46.3 million) with a margin of
34.6% (2021: 35.9%). Adjusted operating profit was £21.9 million (2021:
£22.5 million) and included a £1.1 million credit from the finalisation of
the Exeter insurance claim in respect of additional revenue cost incurred in
2020 and 2021.
The customer service teams have remained focused on maintaining the quality of
service and proactively managed to achieve additional service sales along with
the renewal of a significant number of existing customers. We have, however,
seen some of our customer base reduce their workwear spend as they seek to
reduce their costs.
The business continues to provide excellent levels of service to our existing
and new customers which is reflected in our customer retention remaining
strong at 94.3%. The annual independent customer satisfaction survey results
of 85% remains positive and again reported us as maintaining our position of
being the market sector leader in providing a first-class service to our
customers. Our industry leading service offering has assisted us in winning
new business and regaining a large multi-site engineering account, commencing
in April 2023.
The sales team has been restructured and brought in line with the operational
regions, encouraging a more collaborative approach in actively engaging with
prospective customers. The teams are gaining momentum with increased
activity, sales and more robust pipelines. This is supported by the success of
the National Accounts service and sales teams who have renewed significant
national account customers for a further 3-year term. Our in-house call
centre continues to provide valued support to our sales team. 27.5% of all
new sales won came from new to rental.
The successful implementation of a new laundry management system provides new
functionality and opportunities to introduce new practices and procedures not
only to improve our efficiencies but also to enhance the customer experience
and improve the working environment for our employees.
We remain committed to employee engagement and welfare programmes and creating
an environment that is inclusive to all employees. Following the previous
employee engagement survey, a number of initiatives were implemented to
improve employee wellbeing including the introduction of awareness programmes
along with confidential direct assistance being made available. A further
survey was commissioned in early 2023 showing an overall score of 81%.
In response to rising costs, the operational teams remain focused upon the
continuous improvement of our processes and delivering further enhancements to
our operational efficiencies. Despite the challenges around operational cost,
the business is committed to an ongoing capital investment programme.
Benefitting from advancements in laundry equipment technology, we have
successfully installed several automated systems and have identified further
opportunities whereby additional systems have been commissioned and will be
installed throughout 2023. This is complemented with further investment in
folding and finishing equipment along with the continual upgrading of office,
canteen and general working environments. The business has also implemented
significant price increases to help mitigate inflationary pressures and this
will continue into 2023.
Our new site in Exeter, which was commissioned in September 2021, is
performing in line with our expectations and benefits from automated sorting
systems which, as previously stated, are in the process of being rolled out to
other sites.
Appreciating our environmental impact, the business continues to focus on the
reduction of our consumption of natural resources. Several initiatives have
been implemented to reduce our water and energy usage with a continuous heat
and water recovery unit installed in Lancaster and an energy recovery unit in
Perth, with a commitment to purchase more units in 2023.
In conjunction with our suppliers, we are looking at alternative ways to
improve and manage our waste streams and have identified several opportunities
to reduce our waste to landfill. We are also actively engaged with customers
to reduce their requirements for single use plastic packaging, along with
sourcing alternative recyclable plastics. The initial trials are
encouraging.
The introduction of a sustainable and recyclable range of garments was
successfully launched across the business in 2022. Initial sales are
encouraging with interest from our customers increasing. Trials are also
underway regarding the recycling of our used garments; six sites are actively
engaged in a further feasibility study with an expectation of implementation
in 2023.
HORECA Division
The total revenue for the HORECA division increased by 76.2% to £251.1
million (2021: £142.5 million). Volumes have continued to increase
throughout the year albeit were impacted significantly in the first quarter
due to the Omicron Covid variant. Organic growth was 70.9% and benefitted
from price increases being implemented across the business in order to help
offset the high level of cost inflation experienced.
Adjusted EBITDA for the year increased by 140.5% to £63.0 million (2021:
£26.2 million) with a margin of 25.1% (2021: 18.4%). The adjusted EBITDA
margin in the second half of the year was 28.2%, compared to 21.1% in the
first half. Adjusted operating profit was £24.1 million (2021: £5.2
million loss).
Hotel, Restaurant and Catering, which includes Johnsons Stalbridge and London
Linen, has recovered well after two years of pandemic led disruption.
Service and quality levels returned to our previous high standards, helping
the business to maintain high levels of customer retention. This was
evidenced in our excellent annual customer survey result of 86.5%, placing us
in the top quartile of the business service sector. Service and quality were
also aided by an easing of the recruitment difficulties during 2022 and a
return to a less volatile marketplace for our customers and their linen
requirements.
Customer demand and sales opportunities have been strong, leading to some
localised capacity challenges. However, we have moved customers between
operating sites to manage this volume and created additional capacity by the
investment of a new sortation system and additional ironing lines in Wrexham
and Grantham. Upgrades to chemical dosing equipment in a number of our sites
have improved quality and delivered savings through bulk deliveries.
In addition, we are progressing plans to expand our capacity in the South East
and have signed a new 20-year lease for an additional site. It is anticipated
that the site will open in the second half of 2024. The new site will free up
capacity at existing production facilities through the relocation of work,
moving processing closer to customers. The capital investment is expected to
amount to £16.0 million with cash spend incurred over 2023 and 2024.
Further investments have been made in replacement finishing equipment across
the estate to increase efficiency, maintain our high quality and reduce energy
use. A water recycling plant has successfully been in use returning a
significant proportion of our used water in our Shaftesbury location and we
are paper banding many products instead of using plastic wrap. Electric
vehicles have been deployed for our engineering teams and a selection of our
delivery fleet now run on HVO, which is carbon free.
Post-covid, we have been very active in supporting and seeking feedback from
our employees. Accordingly, engagement with our people has shown a
significant improvement with our employee engagement survey score increasing
to 85% (2021: 79%).
Within Hotel Linen, our ability to predict and efficiently manage customer
volumes remained challenging throughout the year, largely due to operational
changes within our customer base including the number of linen items included
in a room lay-up and the frequency of linen changes, both having reduced when
compared to pre-Covid.
Our key focus was to deliver, on time and in full, to our customer base
throughout 2022 and consequently employee recruitment and retention was
paramount. Numerous initiatives have been introduced to attract and retain
employees including guaranteed hours during low demand weeks, hourly rate
increases, flexible working patterns and other financial incentives. Various
benefits have also been introduced to enhance wellbeing, work/life balance and
learning and development opportunities, as well as the launch of a new
induction process. We continue to work closely with His Majesty's Prison
Service, providing employment for prisoners qualifying for Release on
Temporary Licence.
The National Accounts team continue to develop strong relationships with our
hotel groups who have recognised the unprecedented cost pressures during price
increase discussions. Successfully building strong relationships and
strategic partnerships is reflected in significant growth, both in organic and
new sales, with over 23,500 rooms installed in 2022, some at short notice and
with exceptional feedback on contract implementation. 8,000 of the installs
were in the final quarter of 2022 and a further 2,900 rooms have been
installed in the first two months of 2023, bringing the total number of rooms
being serviced by Hotel Linen to over 200,000. We were also pleased to renew
the contract with the Belfast group of hospitals for a further seven years.
The recent investment in our largest facility in Bourne successfully met our
objectives of improving both efficiency and capacity, as did the investment at
our site in Belfast. The lease of an additional unit on the Belfast site
will further improve employee welfare facilities and the packing area and the
planned replacement of washing equipment in early 2023 will underpin growth in
market share.
Investment has also focused on improving energy and water usage to support
sustainability objectives, with 2023 plans including innovative investment in
robotic machinery and dynamic production data capture.
Our field-based teams rolled out the new 'Linen Room' during the year, an
online customer portal, which gives access to our linen ordering system. The
portal scored a Customer Satisfaction Index of 89.7% in our independent
Customer Satisfaction Survey which is very encouraging. The method for
reporting and ordering stock through the portal is easier, complemented with
improved customer business reports. In addition, the introduction and
utilisation of our new Customer Service App provides an improved platform to
gather customer feedback and identify areas for improvement. Overall, our
Customer Satisfaction Survey increased to 85.2% reflecting the excellent
contribution from all our teams.
Strategic relationships with business suppliers continue to develop, as
demonstrated by the consistent supply of products and services to us, despite
the challenges relating to increased cost and availability of products or
components. This has been of particular note with the supply of vehicles
during 2022 where we have taken delivery of 31 commercial vehicles. Our
partnership approach has proved successful when negotiating with suppliers and
customers alike.
The employee engagement survey for 2022 demonstrated an improvement in all
four key focus areas (wellbeing increasing from 77% to 78%, work patterns from
74% to 79%, work/life balance from 78% to 80%, career development from 75% to
78%) and an overall score of 82%. A significant amount of engagement
initiatives, planned activities and investment in developing our employees has
taken place. Our focus continues in supporting our employees to perform to
their best potential in their current roles, as well as develop for the
future.
ENVIRONMENTAL & SOCIAL RESPONSIBILITY
The Board, as a whole, has overall responsibility for environmental, social
and governance matters and we recognise our duty to stakeholders to operate
the business in an ethical and responsible manner. We remain committed to
further developing our environmental and social responsibility agenda,
recognising that it plays a major part in leading and influencing all of our
people and operations.
In February 2022, we published 'The Johnsons Way' which sets out the Group's
targets for 2030 together with our objectives and plans for 2022. This was
followed by the publication of our Inaugural Sustainability Report in August
2022. Both documents can be found on our website at www.jsg.com.
For the Group to realise the true value of its sustainability contribution,
the sustainability programme must be embedded across all Group functions and
operations. To this end we have spent much of 2022 refreshing our strategy
and communicating our plans across the Group. Embedding the programme into
everyday business is ongoing however, during this period we have made some
significant strides forwards to better understanding those impacts and laying
robust foundations that will support our Vision 2030 goals. Further details
of our achievements during 2022 and our targets for 2023, ongoing initiatives
and actions for the future will be set out within the Group's 2022 Annual
Report.
EMPLOYEES
Our employees are key to the ongoing success of our business and 2022 has been
another challenging year for each and every one of them.
The Board would like to thank all of our employees for their support, hard
work and significant contribution to the success of the business during the
last 12 months. The teamwork and determination demonstrated in order to
deliver a professional and on time service to our customers is a credit to all
of them and we thank them for their continued support.
OUTLOOK
The Board remains confident about the growth opportunities available to the
Group. Our scale, expertise and operational excellence mean that we are well
placed to capitalise on opportunities as markets continue to recover.
Whilst customer behaviour remains difficult to predict and inflationary
pressures continue to persist, we have a resilient business model to help
mitigate these challenges. We also have some protection through the fixing
of a proportion of our energy costs. We continue to secure and implement
price increases across our customer base which, along with additional volume
already secured which will better utilise our labour resource and improve
processing efficiency, will help offset cost inflation.
Through the improving cash flow, we have been able to support our capital
investment plans and increase in rental inventory, embark upon a share buyback
programme and, in February 2023, complete another acquisition. There is
positive momentum moving into 2023 and we will continue to identify
opportunities to strengthen our position in the market as well as continuing
to focus on delivering outstanding customer service and investing in both our
employees and our laundry facilities.
After considering the current economic environment, including the recent, and
possibly further, increases in UK interest rates and the subsequent impact on
our cost of borrowing, the Board expects the result for the year to be in line
with market expectations.
Peter Egan
Chief Executive Officer
6 March 2023
FINANCIAL REVIEW
FINANCIAL RESULTS
Total revenue for the year to 31 December 2022 increased to £385.7 million
(2021: £271.4 million).
Adjusted EBITDA was £104.9 million (2021: £67.9 million) giving a margin of
27.2% (2021: 25.0%) and in-line with management expectations, improving from
the 24.3% margin achieved in the first half of 2022.
The analysis of the Group results across the segments shows the impact of the
pandemic on the adjusted EBITDA of our different divisions and the recovery
evident in 2022.
2022 2021
Adjusted EBITDA Adjusted EBITDA
Revenue Margin Revenue Margin
£m £m % £m £m %
Workwear 134.6 46.6 34.6 128.9 46.3 35.9
HORECA 251.1 63.0 25.1 142.5 26.2 18.4
Central Costs - (4.7) - - (4.6) -
Group 385.7 104.9 27.2 271.4 67.9 25.0
Statutory operating profit was £33.3 million (2021: £8.4 million) whilst
adjusted operating profit was £41.2 million (2021: £12.7 million).
The total finance cost was £3.0 million (2021: £3.3 million) and included
£1.5 million (2021: £1.5 million) of bank interest and hedging costs, £1.5
million (2021: £1.6 million) of interest in respect of IFRS 16 liabilities
and £nil (2021: £0.2 million) in respect of notional interest on pension
liabilities.
A net exceptional credit of £0.7 million (2021: £6.7 million credit)
comprises the recognition of £1.5 million of insurance proceeds relating to
the final receipt for capital items and property costs in relation to the 2020
Exeter plant fire and costs of £0.8 million in relation to Exeter site
clearance costs.
Adjusted profit before taxation was £38.2 million (2021: £9.4 million).
Statutory profit before taxation, after amortisation of intangible assets
(excluding software amortisation) of £7.2 million (2021: £11.0 million) and
an exceptional credit of £0.7 million (2021: £6.7 million), was £30.3
million (2021: £5.1 million).
Adjusted diluted earnings per share was 8.0 pence (2021: 2.2 pence) and
includes the benefit of the capital allowances super-deduction which offers
130% first year relief on qualifying capital spend. Excluding the part of
this benefit which is a permanent reduction in the corporation tax charge,
adjusted diluted earnings per share was 7.2 pence (2021: 1.7 pence).
FINANCING
Total net debt (excluding IFRS 16 liabilities) at the end of the year was
£13.7 million (December 2021: £22.3 million) reflecting the improved trading
performance and after an outflow of £5.6 million in respect of the ongoing
share buyback. Including IFRS 16 liabilities, net debt at December 2022 was
£48.0 million (December 2021: £60.1 million).
The Group remains well funded with access to a committed revolving credit
facility of £85.0 million which matures in August 2025. The terms of the
facility provide an option to extend the term for up to a further two years
and an option to increase the facility by up to a further £50.0 million, both
with bank consent. The facility is considerably in excess of our anticipated
level of borrowings.
Bank covenants comprise gearing and interest cover tests. Gearing, for bank
purposes, is calculated as Adjusted EBITDA compared to total debt, including
IFRS 16 liabilities. The agreed covenant is for the ratio to be not more
than three times and the ratio at 31 December 2022 was 0.5 times. Interest
cover compares Adjusted EBIT to total interest cost with a minimum covenant
ratio of four times. Our current scenario planning provides significant
headroom against the covenants.
Interest payable on bank borrowings is based upon SONIA plus a margin linked
to our gearing covenant and will range from 1.45% to 2.25%. The current
margin is 1.45%.
TAXATION
The tax rate on adjusted profit before taxation, was 6.8% (2021: tax credit
(5.3)%). The rate is significantly below the headline corporation tax rate
of 19% due to a prior year credit combined with the impact of the change in
future tax rates and of the capital allowances super-deduction which offers
130% first year relief on qualifying main rate plant and machinery investments
until 31 March 2023. The impact of the part of the super-deduction which is
a permanent reduction in the corporation tax charge in 2022, is estimated to
be a £3.8 million credit (2021: £2.5 million credit) to corporation tax.
A tax refund of £3.5 million (2021: refund of £0.5 million) was received
during the year in respect of prior year tax losses. Due to the impact of
both tax losses carried forward and the continuing impact of the capital
allowance super-deduction, we are expecting to pay some corporation tax in
respect of 2023 increasing towards more normal levels thereafter.
DIVIDEND
The Board was pleased to reinstate dividend payments, declaring an interim
dividend of 0.8 pence per share in September 2022. The proposed final
dividend of 1.6 pence per share brings the total dividend for 2022 to 2.4
pence per share.
The final dividend, if approved by Shareholders, will be paid on 12 May 2023
to Shareholders on the register at close of business on 14 April 2023. The
ex-dividend date is 13 April 2023. It remains the Board's current intention
to reduce dividend cover from the current level of 3 times to 2.5 times by
financial year 2024.
CASH FLOW
Free cash flow in the year (calculated as net cash generated from operating
activities, less net spend on textile rental items, less the capital element
of leases) was £39.1 million compared to an outflow of £0.5 million in
2021. Of this, we invested £22.4 million (2021: £24.4 million) in the
purchase of property, plant and equipment and software, as we proactively
invest in the business to increase capacity and efficiency across the
estate. Offsetting this spend was £1.5 million (2021: £5.3 million)
received as part of the insurance claim in respect of capital items.
Free cash flow in 2022 was impacted by the net working capital outflow of
£8.2 million (2021: £18.3 million), largely reflective of an increase in
trade receivables, as HORECA volumes recovered and price increases were
secured.
INVESTMENT IN TEXTILE RENTAL ITEMS
Spend on textile rental items amounted to £52.5 million (2021: £41.8
million). The increase reflects the return to more normal levels of spend.
The relationships we have built with our chosen workwear and linen suppliers
have ensured continuity of supply in a timely manner to give the best service
to both existing and new customers.
CAPITAL INVESTMENT AND ACQUISITION
We have continued to invest in plant and equipment, spending £22.1 million in
the year plus a further £0.3 million on software. The focus of the spend
has been to update equipment to achieve a combination of reduced energy and
water consumption and improved productivity and capacity.
The investment of £5.75 million in Regency Laundry Limited in February 2023
is a further step in expanding our range of services. We are assessing the
opportunities to invest further in this business over the coming months.
DEFINED BENEFIT PENSION SCHEME LIABILITIES
As at 31 December 2022, the Scheme's assets had reduced by £73.0 million, to
£148.2 million, after paying out benefits of £10.9 million during the year.
Scheme liabilities reduced by £64.7 million to £157.6 million. The net
deficit, including deferred taxation, has increased to £7.1 million (2021:
£0.9 million) due largely to the significant downturn in financial markets
felt across almost all asset classes in 2022. The increase in the net deficit
at December 2022 will result in an estimated net notional interest cost of
£0.5 million in 2023 (2022: £nil).
The turmoil in the gilt markets in the final quarter of 2022 adversely
impacted the value of the Scheme's assets, although the Scheme's liabilities
also fell as a result of falling gilt prices. The Scheme uses a Liability
Driven Investment (LDI) strategy to partially mitigate the impact on the
Scheme's deficit if interest rates fall or inflation expectations rise. Due to
the gilt market crisis, the interest rate and inflation hedge ratios were
reduced from the target 85% to approximately 70% at December 2022. However, we
remain confident that the Scheme's investment allocation is appropriate for
its objectives and will be reviewed in detail once the triennial actuarial
valuation as at 30 September 2022 is finalised.
We have agreed with the Trustee that the existing deficit recovery payment of
£1.9 million per annum will continue in equal monthly instalments until the
next review following the completion of the triennial valuation as at 30
September 2022 which will be later this year.
CAPITAL STRUCTURE AND SHARE BUYBACK PROGRAMME
The Group maintains a strong Balance Sheet, with net assets having increased
to £284.6 million (2021: £272.4 million).
The Group's medium to long-term intention is to return the capital structure
such that we target leverage of 1x - 1.5x, other than for short term specific
exceptions. Under this framework, our capital allocation policy remains
unchanged and will continue to take into account the following criteria as
part of a periodic review of capital structure:
§ maintaining a strong balance sheet;
§ continuing capital investment to increase processing capacity and
efficiency;
§ appropriate accretive acquisitions;
§ operating a progressive dividend policy; and
§ distributing any surplus cash to Shareholders.
The share buyback programme announced in September 2022 is ongoing. As at 31
December 2022 we had utilised cash of £5.6 million on the programme with a
further £5.8 million utilised up to 6 March 2023.
GOING CONCERN
After considering the monthly cash flow projections, the stress tests and the
facilities available to the Group and Company, the Directors concluded that
there was a reasonable expectation that the Group and Company have adequate
resources for their operational needs, will remain in compliance with the
financial covenants set out in the bank facility agreement and will continue
in operation for at least the period to 30 June 2024. Accordingly, and
having reassessed the principal risks and uncertainties, the Directors
considered that it was appropriate to adopt the going concern basis in
preparing the Group and Company financial statements.
KEY PERFORMANCE INDICATORS ('KPIs')
The main KPIs used as part of the assessment of performance of the Group, and
of each segment, are growth in revenue, adjusted EBITDA margin, adjusted
operating profit/(loss) and adjusted diluted earnings/(loss) per share from
Continuing Operations. In addition, for years 2021 and 2022, the adjusted
diluted earnings per share excluding the impact of the capital allowance
super-deduction will also form part of the assessment. Non-financial KPIs,
as referred to within the Chief Executive's Operating Review, include our
employee and customer survey results and customer retention statistics.
SUMMARY
The focus of the Group continues to be to expand our Textile Services business
through targeted capital investment to allow organic volume growth and through
acquisition.
Yvonne Monaghan
Chief Financial Officer
6 March 2023
CONSOLIDATED INCOME STATEMENT
Year ended Year ended
31 December 31 December
2022 2021
Note £m £m
Revenue 2 385.7 271.4
Impairment loss on trade receivables (0.9) (0.4)
All other costs (351.5) (262.6)
Operating profit 2 33.3 8.4
Operating profit before amortisation of intangible assets 2 41.2 12.7
(excluding software amortisation), goodwill impairment and exceptional items
Amortisation of intangible assets (excluding software amortisation) (7.2) (11.0)
Goodwill impairment (1.4) -
Exceptional items 3 0.7 6.7
Operating profit 2 33.3 8.4
Finance cost 4 (3.0) (3.3)
Profit before taxation 30.3 5.1
6 (1.5) 1.8
Taxation (charge) / credit
28.8 6.9
Profit for the year from continuing operations
Profit / (loss) for the year from discontinued operations 0.2 (0.3)
Profit for the year attributable to equity holders 29.0 6.6
EARNINGS PER SHARE 8
Basic earnings per share
- From continuing operations 6.5p 1.6p
- From discontinued operations - (0.1)p
From total operations 6.5p 1.5p
Diluted earnings per share
- From continuing operations 6.5p 1.6p
- From discontinued operations - (0.1)p
From total operations 6.5p 1.5p
See note 8 for further details of Adjusted earnings per share and Adjusted
diluted earnings per share.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME Year ended Year ended
31 December 31 December
2022 2021
Note £m £m
Profit for the year 29.0 6.6
Items that will not be subsequently reclassified to profit or loss
Remeasurement and experience (losses) / gains on post-employment benefit 18 (10.0) 11.0
obligations
Taxation in respect of remeasurement and experience losses / (gains) 2.5 (2.1)
Deferred taxation rate change in respect of remeasurement and experience 0.1 -
losses / (gains)
Items that may be subsequently reclassified to profit or loss
Cash flow hedges (net of taxation) - fair value gains 1.4 1.3
(2.2) -
- transfers to administrative expenses
Total other comprehensive (loss) / income for the year (8.2) 10.2
Total comprehensive income for the year 20.8 16.8
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
Share Share Merger Reserve Capital Redemption Reserve Hedge Reserve Retained Earnings Total
Capital Premium Equity
£m £m £m £m £m £m £m
Balance at 31 December 2020 44.4 16.3 1.6 0.6 (1.0) 192.7 254.6
Profit for the year - - - - - 6.6 6.6
Other comprehensive income - - - - 1.3 8.9 10.2
Total comprehensive income for the year - - - - 1.3 15.5 16.8
Share options (value of employee services) - - - - - 0.5 0.5
Purchase of own shares by EBT - - - - - (0.1) (0.1)
Issue of share capital 0.1 0.5 - - - - 0.6
Transactions with Shareholders recognised directly in Shareholders' equity 0.1 0.5 - - - 0.4 1.0
Balance at 31 December 2021 44.5 16.8 1.6 0.6 0.3 208.6 272.4
Profit for the year - - - - - 29.0 29.0
Other comprehensive income - - - - (0.8) (7.4) (8.2)
Total comprehensive (loss) / income for the year - - - - (0.8) 21.6 20.8
Share options (value of employee services) - - - - - 0.8 0.8
Share buybacks (0.6) - - 0.6 - (5.7) (5.7)
Deferred tax on share options - - - - - (0.2) (0.2)
Dividend paid - - - - - (3.5) (3.5)
Transactions with Shareholders recognised directly in Shareholders' equity (0.6) - - 0.6 - (8.6) (8.6)
Balance at 31 December 2022 43.9 16.8 1.6 1.2 (0.5) 221.6 284.6
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 2022 the EBT held 9,024 shares (2021:
9,024). At the same time, and pursuant to the ongoing share buyback
programme, the Group also held 116,934 treasury shares (2021: nil). These
were subsequently cancelled on 3 January 2023. See note 21 for further
details.
CONSOLIDATED BALANCE SHEET
As at As at
31 December 31 December
2022 2021
£m £m
Note Restated*
Assets
Non-current assets
Goodwill 9 133.8 135.2
Intangible assets 10 10.9 16.7
Property, plant and equipment 11 119.6 113.3
Right of use assets 12 31.7 35.5
Textile rental items 13 63.8 48.4
Trade and other receivables 0.3 0.3
Derivative financial assets - 0.3
360.1 349.7
Current assets
Inventories 1.8 2.2
Trade and other receivables 61.0 47.9
Reimbursement assets 14 4.5 4.3
Current income tax assets - 3.6
Cash and cash equivalents 6.1 5.2
73.4 63.2
Liabilities
Current liabilities
Trade and other payables 75.7 63.7
Borrowings 15 5.1 9.5
Current income tax liabilities 0.2 -
Lease liabilities 16 5.1 5.2
Derivative financial liabilities 0.4 0.1
Provisions 17 5.1 4.8
91.6 83.3
Non-current liabilities
Post-employment benefit obligations 18 10.2 2.1
Deferred income tax liabilities 1.8 3.3
Trade and other payables 0.3 0.3
Borrowings 15 14.7 18.0
Lease liabilities 16 29.2 32.6
Derivative financial liabilities 0.3 -
Provisions 17 0.8 0.9
57.3 57.2
Net assets 284.6 272.4
Equity
Capital and reserves attributable to the company's shareholders
Share capital 21 43.9 44.5
Share premium 16.8 16.8
Merger reserve 1.6 1.6
Capital redemption reserve 1.2 0.6
Hedge reserve (0.5) 0.3
Retained earnings 221.6 208.6
Total equity 284.6 272.4
* A £4.5 million provision has been recognised as at 31 December 2022 in
respect of third-party claims made against the Group, but which are
indemnified under the terms of its insurance policies. A corresponding
reimbursement asset of £4.5 million has been recognised as at 31 December
2022. As the Group expects, on average, insurance claims to be settled within
one year, which is driven by a review of the historic claims data, recognition
of these balances is made within current assets and current liabilities. The
impact on the brought forward balance sheet at 1 January 2021 would be the
inclusion of a £2.5 million provision and a corresponding reimbursement asset
of £2.5 million. The balance sheet at 31 December 2021 has been restated to
recognise a provision of £4.3 million and a corresponding reimbursement asset
of £4.3 million.
The notes on pages 21 to 38 form an integral part of these condensed
consolidated financial statements. The condensed consolidated financial
statements on pages 16 to 38 were approved by the Board of Directors on 6
March 2023 and signed on its behalf by:
Yvonne Monaghan
Chief Financial Officer
CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended Year ended
Note 31 December 31 December 2021
2022 £m
£m
Cash flows from operating activities
Profit for the year 29.0 6.6
Adjustments for:
Taxation charge / (credit) - continuing 6 1.5 (1.8)
- 0.3
- discontinued
Total finance cost 4 3.0 3.3
Depreciation 63.5 55.1
Amortisation 10 7.4 11.1
Goodwill impairment 9 1.4 -
(Profit) / loss on disposal of property, plant and equipment (0.2) 0.1
Profit on termination of lease liabilities - (0.2)
Decrease / (increase) in inventories 0.4 (0.8)
Increase in trade and other receivables (12.9) (15.4)
Increase / (decrease) in trade and other payables 4.3 (2.1)
Deficit recovery payments in respect of post-employment benefit obligations (1.9) (1.9)
Share-based payments 0.8 0.5
Decrease in provisions (0.1) (2.0)
Commodity swaps not qualifying as hedges (0.1) (0.3)
Income re insurance claims (1.5) (5.3)
Business acquisition costs charged to the income statement - 0.1
Cash generated from operations 94.6 47.3
Interest paid (3.6) (3.2)
Taxation received 3.5 0.5
Net cash generated from operating activities 94.5 44.6
Cash flows from investing activities
Acquisition of businesses (including acquired overdrafts) - (4.8)
Disposal of business costs - (3.6)
Purchase of other intangible assets (1.3) -
Purchase of property, plant and equipment (22.1) (24.2)
Income re insurance claims 1.5 5.3
Purchase of software (0.3) (0.2)
Proceeds from sale of property, plant and equipment 0.4 -
Purchase of textile rental items (52.5) (41.8)
Proceeds received in respect of special charges 13 2.7 2.4
Net cash used in investing activities (71.6) (66.9)
Cash flows from financing activities
Proceeds from borrowings 48.0 29.0
Repayment of borrowings (51.0) (12.5)
Capital element of leases (5.6) (5.7)
Purchase of own shares by EBT - (0.1)
Share buyback 21 (5.6) -
Proceeds from issue of Ordinary shares 21 - 0.6
Dividends paid to company shareholders 7 (3.5) -
Net cash (used in) / generated from financing activities (17.7) 11.3
Net increase / (decrease) in cash and cash equivalents 5.2 (11.0)
Cash and cash equivalents at beginning of year (4.4) 6.6
Cash and cash equivalents at end of year 19 0.8 (4.4)
Cash and cash equivalents comprise:
Cash 6.1 5.2
Overdraft (5.3) (9.6)
Cash and cash equivalents at end of year 0.8 (4.4)
NOTES TO THE PRELIMINARY ANNOUNCEMENT
1 BASIS OF PREPARATION
Basis of Preparation
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 financial information contained within this Preliminary Announcement has
been prepared on a going concern basis in accordance with UK adopted
international accounting standards in conformity with the requirements of the
Companies Act 2006.
The financial information has been prepared using accounting policies
consistent with those set out in the 2021 Annual Report except as disclosed in
notes 14 and 17 of this Preliminary Announcement.
The financial information set out within this Preliminary Announcement does
not constitute the Company's statutory accounts for the years ended 31
December 2022 or 31 December 2021 within the meaning of Section 434 of the
Companies Act 2006, but is derived from those accounts.
Statutory accounts for 2021 have been delivered to the Registrar of Companies,
and those for 2022 will be delivered as soon as practicable but not later than
30 April 2023. The auditor has reported on those accounts; the reports were
unqualified and did not contain a statement under Section 498(2) or (3) of the
Companies Act 2006.
Going Concern
Background and Summary
After careful assessment, the Directors have adopted the going concern basis
in preparing these condensed consolidated financial statements. The process
and key judgments in coming to this conclusion are set out below. The going
concern status of the Company is intrinsically linked to that of the Group.
The Group's business activities, together with details of the financial
position of the Group, its cash flows, liquidity position and borrowing
facilities, are described in the Chief Executive's Operating Review and the
Financial Review.
Going Concern Assessment
Cash Flows, Covenants and Stress Testing
For the purposes of the going concern assessment, the Directors have prepared
monthly cash flow projections for the period to 30 June 2024 (the assessment
period). The Directors consider this to be a reasonable period for the going
concern assessment as it enables us to consider the potential impact of
macroeconomic and geopolitical factors over an extended period. The cash
flow projections show that the Group has significant headroom against its
committed facilities and can meet its financial covenant obligations.
The Group has also performed a reverse stress test against the base monthly
cash flow projections referred to above in order to determine the performance
level that would result in a reduction in headroom against its committed
facilities to nil or a breach of its covenants. The interest cover covenant
would be breached in the event that adjusted operating profit reduced to
approximately 60% of 2022 levels. The Directors do not consider this
scenario to be plausible.
As a further stress test, the Group considered the impact of increasing
interest rates. The Directors do not consider the magnitude of the increase
in interest rates that would be required in order for a covenant to be
breached to be plausible.
The Group has also considered the impact of a more modest increase in interest
rates alongside the reduction required in adjusted operating profit to cause a
breach in the interest cover covenant. Again, the Directors do not consider
such a scenario to be plausible.
Each of the stress tests assume no mitigating actions are taken. Mitigating
actions available to the Group, should they be required, include reductions in
discretionary capital expenditure and ceasing dividend payments.
Liquidity
The Group has access to a committed Revolving Credit Facility of £85.0
million (the 'Facility') which matures in August 2025. The terms of the
Facility provide an option to extend the term for up to a further two years
and an option to increase the Facility by up to a further £50.0 million, both
with bank consent. The Facility is considerably in excess of our anticipated
borrowings and provides ample liquidity for current commitments.
Going Concern Statement
After considering the monthly cash flow projections, the stress tests and the
facilities available to the Group and Company, the Directors have a reasonable
expectation that the Group and Company have adequate resources for their
operational needs, will remain in compliance with the financial covenants set
out in the bank facility agreement and will continue in operation for at least
the period to 30 June 2024. Accordingly, and having reassessed the principal
risks and uncertainties, the Directors considered it appropriate to adopt the
going concern basis in preparing the Group and Company financial statements.
NOTES TO THE PRELIMINARY ANNOUNCEMENT (continued)
1 BASIS OF PREPARATION (continued)
Forward Looking Statements
Certain statements in these condensed consolidated financial statements
constitute forward-looking statements. Any statement in this document that
is not a statement of historical fact including, without limitation, those
regarding the Group's future expectations, operations, financial performance,
financial condition and business is a forward-looking statement. Such
forward-looking statements are subject to risks and uncertainties that may
cause actual results to differ materially. These risks and uncertainties
include, among other factors, changing economic, financial, business or other
market conditions. These and other factors could adversely affect the
outcome and financial effects of the plans and events described in these
condensed consolidated financial statements. As a result, you are cautioned
not to place reliance on such forward-looking statements. Nothing in this
document should be construed as a profit forecast.
Alternative Performance Measures (APMs)
Throughout this Preliminary Announcement, and consistent with prior years, we
refer to a number of APMs. APMs are used by the Group to provide 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. The APMs, which are not recognised under
UK-adopted international accounting standards, are:
§ 'adjusted operating profit', which refers to continuing operating
profit/(loss) before amortisation of intangible assets (excluding software
amortisation), goodwill impairment and exceptional items;
§ 'adjusted profit before taxation', which refers to adjusted operating
profit less total finance cost;
§ 'adjusted EBITDA', which refers to adjusted operating profit plus the
depreciation charge for property, plant and equipment, textile rental items
and right of use assets plus software amortisation;
§ 'adjusted EPS', which refers to EPS calculated based on adjusted profit
after taxation;
§ 'adjusted EPS excluding super-deduction', an additional measure
introduced for 2021 and 2022 only which amends the 'adjusted EPS' to exclude
the short-term benefit of the capital allowance super-deduction; and
§ 'adjusted net debt', which refers to net debt excluding IFRS 16 lease
liabilities.
The Board considers that the above APMs, all of which exclude the effects of
non-recurring items or non-operating events, provide useful information for
stakeholders on the underlying trends and performance of the Group and
facilitate meaningful year on year comparisons.
Limitations of APMs
The Board is cognisant that APMs do have limitations and should not be
regarded as a complete picture of the Group's financial performance.
Limitations of APMs may include, inter alia:
§ similarly named measures may not be comparable across companies;
§ profit-related APMs may exclude significant, sometimes recurring,
business transactions (e.g. restructuring charges and acquisition-related
costs) that impact financial performance and cash flows; and
§ adjusted operating profit, adjusted profit before taxation, adjusted
EBITDA, adjusted EPS and adjusted EPS excluding super-deduction all exclude
the amortisation of intangibles acquired in business combinations, but do not
similarly exclude the related revenue.
Reconciliation of APMs to Statutory Performance Measures
Reconciliations between the above APMs and statutory performance measures are
reconciled within this Preliminary Announcement as follows:
§ Adjusted operating profit - note 2
§ Adjusted profit before taxation - note 5
§ Adjusted EBITDA - note 5
§ Adjusted EPS - note 8
§ Adjusted EPS excluding super-deduction - note 8
§ Adjusted net debt - note 19
2 SEGMENT ANALYSIS
Segment information is presented based on the Group's management and internal
reporting structure as at 31 December 2022.
The chief operating decision-maker (CODM) has been identified as the Executive
Directors. The CODM reviews the Group's internal reporting in order to
assess performance and allocate resources. The CODM determines the operating
segments based on these reports and on the internal reporting structure.
For reporting purposes, the CODM 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
2) they have similar economic characteristics (for example, where
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.
The CODM deems it appropriate to present two reporting segments (in addition
to 'Discontinued Operations' and 'All Other Segments'), being:
1) Workwear: comprising of our Workwear business only; and
2) Hotel, Restaurant and Catering ('HORECA'): comprising of our
Stalbridge (now including London Linen), Hotel Linen and Lilliput businesses,
each of which are a separate operating segment.
The CODM's rationale for aggregating the Stalbridge, Hotel Linen and Lilliput
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 CODM 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 CODM. 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 (the property holding company of the Group) is
credited back, where appropriate, to the paying company for the purpose of
segmental reporting. There have been no changes in measurement methods used
compared to the prior year.
Other information provided to the CODM is measured in a manner consistent with
that in the financial statements. Segment assets exclude deferred income tax
assets, derivative financial assets, current income tax assets and cash and
cash equivalents, all of which are managed on a central basis. Segment
liabilities include lease liabilities but exclude current income tax
liabilities, bank borrowings, derivative financial liabilities,
post-employment benefit obligations and deferred income tax 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 24 to 25.
Workwear
Supply and laundering of workwear garments and protective wear. § Workwear
HORECA
Linen services for the hotel, restaurant and catering sector. § Stalbridge
§ Hotel Linen
§ Lilliput
All Other Segments
Comprising of central and Group costs.
2 SEGMENT ANALYSIS (continued)
Year ended 31 December 2022 All Other Segments Total
Workwear HORECA
£m £m £m £m
Revenue
Rendering of services 131.0 251.0 - 382.0
Sale of goods 3.6 0.1 - 3.7
Total revenue 134.6 251.1 - 385.7
Result
Operating profit / (loss) before amortisation of intangible assets (excluding 21.9 24.1 (4.8) 41.2
software amortisation), goodwill impairment and exceptional items
Amortisation of intangible assets (excluding software amortisation) (0.4) - (7.2)
(6.8)
Goodwill impairment - (1.4) - (1.4)
Exceptional items 0.9 - (0.2) 0.7
Operating profit / (loss) 22.4 15.9 (5.0) 33.3
Total finance cost (3.0)
Profit before taxation 30.3
Taxation charge (1.5)
Profit for the year from continuing operations 28.8
Profit for the year from discontinued operations 0.2
Profit for the year attributable to equity holders 29.0
All Other Segments Total
Workwear
HORECA
£m £m £m £m
Balance sheet information
Segment assets 144.7 281.8 0.9 427.4
Unallocated assets: 6.1
Cash and cash equivalents
Total assets 433.5
Segment liabilities (37.4) (76.3) (2.5) (116.2)
Unallocated liabilities: Bank borrowings (19.8)
(0.7)
Derivative financial liabilities
(10.2)
Post-employment benefit obligations
(0.2)
Current income tax liabilities
(1.8)
Deferred income tax liabilities
Total liabilities (148.9)
Other information
Non-current asset additions
- Property, plant and equipment 6.3 18.5 - 24.8
- Right of use assets 0.8 1.2 - 2.0
- Textile rental items 21.5 35.9 - 57.4
- Capitalised software 0.2 0.1 - 0.3
- Customer contracts 1.3 - - 1.3
Depreciation, impairment and amortisation expense
- Property, plant and equipment 5.8 12.5 - 18.3
- Right of use assets depreciation 2.0 3.8 0.1 5.9
- Textile rental items depreciation 16.7 22.6 - 39.3
- Capitalised software 0.2 - - 0.2
- Customer contracts 0.4 6.8 - 7.2
- Goodwill impairment - 1.4 - 1.4
The results, assets and liabilities of all segments arise in the Group's
country of domicile, being the United Kingdom.
2 SEGMENT ANALYSIS (continued)
Year ended 31 December 2021 Workwear HORECA All Other Segments Total
£m £m £m £m
Revenue
Rendering of services 125.8 142.3 - 268.1
Sale of goods 3.1 0.2 - 3.3
Total revenue 128.9 142.5 - 271.4
Result
Operating profit / (loss) before amortisation of intangible assets (excluding 22.5 (5.2) (4.6) 12.7
software amortisation) and exceptional items
Amortisation of intangible assets (excluding software amortisation) - - (11.0)
(11.0)
Exceptional items 3.0 (0.1) 3.8 6.7
Operating profit / (loss) 25.5 (16.3) (0.8) 8.4
Total finance cost (3.3)
Profit before taxation 5.1
Taxation credit 1.8
Profit for the year from continuing operations 6.9
Loss for the year from discontinued operations (0.3)
Profit for the year attributable to equity holders 6.6
Total
Workwear HORECA All Other
(*Restated) (*Restated) Segments (*Restated)
£m £m £m £m
Balance sheet information
Segment assets 139.1 263.6 1.1 403.8
Unallocated assets: 3.6
Current income tax assets
0.3
Derivative financial assets
5.2
Cash and cash equivalents
Total assets 412.9
Segment liabilities (38.8) (65.7) (3.0) (107.5)
Unallocated liabilities: Bank borrowings (27.5)
(0.1)
Derivative financial liabilities
(2.1)
Post-employment benefit obligations
(3.3)
Deferred income tax liabilities
Total liabilities (140.5)
Other information
Non-current asset additions
- Property, plant and equipment 12.7 9.8 - 22.5
- Right of use assets 0.4 0.6 - 1.0
- Textile rental items 19.6 27.1 - 46.7
- Capitalised software - 0.1 - 0.1
Depreciation, impairment and amortisation expense
- Property, plant and equipment 5.5 11.3 - 16.8
- Right of use assets depreciation 2.2 3.9 - 6.1
- Textile rental items depreciation 16.1 16.1 - 32.2
- Capitalised software - 0.1 - 0.1
- Customer contracts - 11.0 - 11.0
The results, assets and liabilities of all segments arise in the Group's
country of domicile, being the United Kingdom.
* £4.3 million of reimbursement assets and a corresponding provision for
liabilities has been recognised as at 31 December 2021. Refer to notes 14
and 17 for further information.
3 EXCEPTIONAL ITEMS
2022 2021
£m £m
Costs in relation to business acquisition activity - (0.1)
Insurance claims 1.5 5.9
Other costs re insurance claims (0.8) (0.6)
Income from Parent Company Guarantees - 1.5
Total exceptional items 0.7 6.7
The exceptional items shown above are all included within administrative
expenses.
Current year exceptional items
Insurance claims and other costs
In 2020, a Workwear processing plant was destroyed as a result of a fire.
Final settlement proceeds of £1.5 million were received in the current year
in respect of this insurance claim, relating to capital items.
Costs of £0.8 million have been incurred in the current year in respect of
the demolition of the destroyed site and preparing the site for sale.
Prior year exceptional items
Costs in relation to business acquisition activity
During the prior year, professional fees of £0.1 million were paid relating
to the acquisition of Lilliput (Dunmurry) Limited.
Insurance claims and other costs
In 2020, a Workwear processing plant was destroyed as a result of a fire.
Interim insurance proceeds of £5.2 million were received during the prior
year. Costs of £0.4 million were incurred for initial works to demolish
the damaged building along with associated professional fees of £0.2
million.
A further Workwear processing plant was damaged as a result of flooding during
the previous year. Final settlement proceeds of £0.7 million were received
during the prior year in respect of this insurance claim.
Income from Parent Company Guarantees
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. A further clause within the Sale and
Purchase Agreement obligated the purchaser to make an additional one-off
payment in the event the business was subsequently sold. On 16 November
2021, the business was sold and therefore a payment of £1.5 million was made
to the Group in respect of this obligation.
4 FINANCE COST
2022 2021
£m £m
Finance cost:
- Interest payable on bank loans and overdrafts 1.3 1.4
- Gain on interest rate swaps not qualifying as hedges (0.1) (0.2)
- Amortisation of bank facility fees 0.3 0.3
- Finance costs on lease liabilities relating to IFRS 16 (note 16) 1.5 1.6
- Notional interest on post-employment benefit obligations (note 18) - 0.2
Total finance cost 3.0 3.3
Following the equity placing in June 2020 which raised £82.7 million, the
Group repaid its loans outstanding at that date. Hedge accounting was
therefore discontinued at that date as the Group no longer had any loans for
the Group's interest rate swaps to economically hedge. Accordingly, the Mark
to Market value of £0.6 million, as at 30 June 2020, was transferred from
equity and recognised as an expense within finance costs. The change in fair
value on interest rate swaps has been recognised directly within finance costs
resulting in a credit of £0.1 million (2021: £0.2 million).
5 ALTERNATIVE PERFORMANCE MEASURES (APMs)
Throughout this Preliminary Announcement, we refer to a
number of APMs. A reconciliation of certain of the APMs, to the relevant
statutory performance measure, is shown below. Other reconciliations can be
found in notes 2, 8 and 19.
Adjusted profit before taxation 2022 2021
£m £m
Profit before taxation 30.3 5.1
Amortisation of intangible assets (excluding software amortisation) 7.2 11.0
Goodwill impairment 1.4 -
Exceptional items (0.7) (6.7)
Adjusted profit before taxation 38.2 9.4
Taxation thereon (2.6) 0.5
Adjusted profit after taxation 35.6 9.9
2022 2021
Adjusted EBITDA
£m £m
Operating profit before amortisation of intangible assets 41.2 12.7
(excluding software amortisation), goodwill impairment and exceptional items
Software amortisation 0.2 0.1
Property, plant and equipment depreciation 18.3 16.8
Right of use asset depreciation 5.9 6.1
Textile rental items depreciation 39.3 32.2
Adjusted EBITDA 104.9 67.9
6 TAXATION
2022 2021
£m £m
Current tax
UK corporation tax credit for the year - -
Adjustment in relation to previous years 0.3 (0.8)
Current tax charge / (credit) for the year 0.3 (0.8)
Deferred tax
Origination and reversal of temporary differences 3.3 (3.0)
Changes in tax rate - 1.6
Adjustment in relation to previous years (2.1) 0.4
Deferred tax charge / (credit) for the year 1.2 (1.0)
Total charge / (credit) for taxation included in the Consolidated Income 1.5 (1.8)
Statement
The tax charge / (credit) for the year is lower than (2021: lower than) the
effective rate of Corporation Tax in the UK of 19% (2021: 19%). A
reconciliation is provided below:
2022 2021
£m £m
Profit before taxation 30.3 5.1
Profit before taxation multiplied by the effective rate of Corporation Tax in 5.8 1.0
the UK
Factors affecting taxation charge for the year:
Non-taxable income (0.3) (0.4)
Tax effect of expenses not deductible for tax purposes 1.1 0.5
Current year impact of super-deduction (2.9) (2.5)
Difference in current and deferred taxation rates (0.4) (1.6)
Changes in tax rate - 1.6
Adjustments in relation to previous years (0.9) (0.4)
Adjustments in relation to previous years - super-deduction (0.9) -
Total charge / (credit) for taxation included in the Consolidated Income 1.5 (1.8)
Statement
6 TAXATION (continued)
Taxation in relation to the amortisation of intangible assets (excluding
software amortisation) has decreased the charge for taxation on continuing
operations by £1.1 million (2021: taxation credit increased by £1.6
million). Taxation in relation to exceptional items has increased the charge
for taxation on continuing operations by £nil (2021: taxation credit
decreased by £0.3 million).
The rate of UK corporation tax is currently 19.0%. The Finance Bill 2021
enacted provisions to increase the main rate of UK corporation tax to 25% from
6 April 2023 for businesses with profits of £250,000 or more. As such,
deferred income tax balances 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 assets and liabilities are forecast to be
realised, which has resulted in an average deferred income tax rate of 24.6%
(2021: 23.3%).
The impact of the change in deferred tax rate is £nil (2021: £1.6 million
charge) in the Consolidated Income Statement.
A capital allowance super-deduction, which offers 130% first year relief on
qualifying main rate plant and machinery investments until 31 March 2023, has
been included within the tax calculations for 31 December 2022. This
allowance provides a permanent tax benefit on our Textile Rental items given
their short life nature. The impact of the super-deduction to 31 December
2022 is a credit of £3.8 million (2021: credit of £2.5 million) of which
£0.9 million is in relation to adjustments in the prior year.
The further prior year adjustment of £0.9 million relates to, in the main,
the finalisation of the tax position in respect of insurance claims following
the fire and flood at two sites in 2020 along with a final tax position
relating to an indemnity settlement in 2021. Information regarding the final
settlement of these claims only became available during 2022 to enable the
prior year tax computations to be finalised.
During the year, a deferred taxation credit of £2.6 million (2021: £2.1
million charge) has been recognised in Other Comprehensive Income in relation
to post-employment benefit obligations.
7 DIVIDENDS
2022 2021
Dividend per share
Final dividend proposed 1.60p -
Interim dividend proposed and paid 0.80p -
2022 2021
Shareholders' funds committed £m £m
Final dividend proposed 6.9 -
Interim dividend proposed and paid 3.5 -
The Directors propose the payment of a final dividend in respect of the year
ended 31 December 2022 of 1.6 pence per share. Based upon the number of
shares in issue as at the date of this report, the final dividend will utilise
Shareholders' funds of £6.9 million and will be paid, subject to Shareholder
approval, on 12 May 2023 to Shareholders on the register of members on 14
April 2023. Given the ongoing share buyback programme however, the Directors
anticipate that the actual distribution will ultimately be less than the
amount stated above. 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 2022 in respect of
this proposed dividend.
8 EARNINGS PER SHARE 2022 2021
£m £m
Profit for the financial year from continuing operations attributable to 28.8 6.9
Shareholders
Amortisation of intangible assets from continuing operations (net of taxation) 6.1 9.4
Goodwill impairment (net of taxation) 1.4 -
Exceptional costs from continuing operations (net of taxation) (0.7) (6.4)
Adjusted profit from continuing operations attributable to Shareholders 35.6 9.9
Profit / (loss) from discontinued operations attributable to Shareholders 0.2 (0.3)
Total profit from all operations attributable to Shareholders 35.8 9.6
No. of No. of
shares shares
Weighted average number of Ordinary shares 444,288,818 444,939,982
Potentially dilutive Ordinary shares 95,000 206,112
Diluted number of Ordinary shares 444,383,818 445,146,094
Basic earnings per share
From continuing operations 6.5p 1.6p
From discontinuing operations - (0.1)p
From total operations 6.5p 1.5p
Adjustments for amortisation of intangible assets (continuing) 1.4p 2.1p
Adjustment for goodwill impairment (continuing) 0.3p (1.5)p
Adjustment for exceptional items (continuing (2021: discontinued)) (0.2)p 0.1p
Adjusted basic earnings per share (continuing) 8.0p 2.2p
Adjusted basic earnings per share (discontinued) - -
Adjusted basic earnings per share from total operations 8.0p 2.2p
Diluted earnings per share
From continuing operations 6.5p 1.6p
From discontinuing operations - (0.1)p
From total operations 6.5p 1.5p
Adjustments for amortisation of intangible assets (continuing) 1.4p 2.1p
Adjustment for goodwill impairment (continuing) 0.3p (1.5)p
Adjustment for exceptional items (continuing (2021: discontinued)) (0.2)p 0.1p
Adjusted diluted earnings per share 8.0p 2.2p
Adjusted diluted earnings per share (continuing) 8.0p 2.2p
Adjusted diluted earnings per share (discontinued) - -
Adjusted diluted earnings per share from total operations 8.0p 2.2p
Adjusted diluted earnings per share excluding super-deduction (continuing) 7.2p 1.7p
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 and those held as Treasury shares awaiting cancellation, 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), goodwill impairment and
exceptional items, all net of taxation, and are considered to show the
underlying performance of the Group.
The current year total taxation credit has benefited from £3.8 million of
additional credit resulting from the capital allowance super-deduction, which
offers 130% first year relief on qualifying main rate plant and machinery
investments until 31 March 2023. Due to the distortion this has on adjusted
diluted earnings per share in 2022 and 2021, an adjusted diluted earnings per
share value excluding this benefit has been disclosed.
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 of the
option 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 issuable shares and are therefore only included within the
calculation of diluted EPS if the performance conditions are satisfied at the
end of the reporting period, irrespective of whether this is the end of the
vesting period or not.
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. Potentially dilutive
Ordinary shares have been treated as dilutive in both years, as their
inclusion in the diluted earnings per share calculation decreases the 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.
9 GOODWILL
2022 2021
£m £m
Cost
Brought forward 135.2 130.9
Business combinations - 4.3
Carried forward 135.2 135.2
Accumulated impairment losses
Brought forward - -
Losses in the year 1.4 -
Carried forward 1.4 -
Carrying amount
Opening 135.2 130.9
Closing 133.8 135.2
In accordance with UK adopted international accounting standards, goodwill is
not amortised, but instead is tested annually for impairment, or more
frequently if there are indicators that an impairment has arisen, and carried
at cost less accumulated impairment losses.
Following the increase in the pre-tax discount rate to 12.40% at June 2022
from 10.51% at December 2021, the Group recognised a goodwill impairment loss
of £1.4 million in respect of Lilliput. Fair value less costs to dispose of
the CGU was also considered however, the value in use was deemed to be the
higher recoverable value. Following the recently completed investment
undertaken at Lilliput, the most recent financial forecasts for the Group
reflect revised expected future cash flows for Lilliput. Accordingly, no
further impairment was required as at 31 December 2022 and, in fact,
significant headroom exists. However, under UK adopted international
accounting standards, a goodwill impairment cannot be reversed.
10 INTANGIBLE ASSETS
Capitalised software
2022 2021
£m £m
Opening net book value (as previously reported) 1.5 1.5
Additions 0.3 0.1
Amortisation (0.2) (0.1)
Closing net book value 1.6 1.5
Other intangible assets
2022 2021
£m £m
Opening net book value 15.2 25.0
Additions 1.3 -
Business combinations - 1.2
Amortisation (7.2) (11.0)
Closing net book value 9.3 15.2
Other intangible assets comprise of customer contracts and relationships.
During the year to 31 December 2022, the Group acquired customer contracts
valued at £1.3 million (2021: £nil).
11 PROPERTY, PLANT AND EQUIPMENT
2022 2021
£m £m
Opening net book value 113.3 107.2
Additions 24.8 22.5
Business combinations - 0.5
Depreciation (18.3) (16.8)
Disposals (0.2) (0.1)
Closing net book value 119.6 113.3
CAPITAL COMMITMENTS
Orders placed for future capital expenditure contracted but not provided for
in the financial statements are shown below:
2022 2021
£m £m
Property, plant and equipment 11.1 10.9
12 RIGHT OF USE ASSETS
2022 2021
£m £m
Opening net book value 35.5 38.5
Additions 2.0 1.0
Business combinations - 0.8
Reassessment / modification of assets previously recognised 0.1 1.3
Depreciation (5.9) (6.1)
Closing net book value 31.7 35.5
The reassessment / modification of assets relates to rental increases and
extensions to lease terms that have been agreed during the year to 31 December
2022 and 31 December 2021 for property and commercial vehicle leases that were
in place at the start of the relevant year.
13 TEXTILE RENTAL ITEMS
2022 2021
£m £m
Opening net book value 48.4 35.6
Additions 57.4 46.7
Business combinations - 0.7
Depreciation (39.3) (32.2)
Special charges (2.7) (2.4)
Closing net book value 63.8 48.4
14 REIMBURSEMENT ASSETS
2022 2021
£m £m
Restated
Reimbursement assets 4.5 4.3
£4.3 million of reimbursement assets have been recognised as at 31 December
2021 in respect of the reimbursement of third party claims made against the
Group, which are indemnified under the terms of its insurance policies. A
corresponding provision for liabilities of £4.3 million has been recognised
as at 31 December 2021.
As the Group expects, on average, insurance claims to be settled within one
year which is driven by a review of the historic claims data, recognition of
these balances is made within current assets and current liabilities.
The Group recognises a reimbursement asset in respect of third-party claims
made against the Group, but which under the terms of its insurance policies,
the Group is indemnified. All of the expenditure required to settle such
claims will be reimbursed by the insurer under the terms of the policies, and
therefore it is virtually certain that reimbursement will be received.
15 BORROWINGS
2022 2021
£m £m
Current
Overdraft 5.3 9.6
Bank loans (0.2) (0.1)
5.1 9.5
Non-current
Bank loans 14.7 18.0
14.7 18.0
19.8 27.5
At 31 December 2022, borrowings were secured and drawn down under a committed
facility dated 8 August 2022. The facility comprises an £85.0 million rolling
credit facility (including an overdraft) which runs to August 2025 with two,
one-year, extension options with a further option, both with bank consent, to
increase the facility by up to an additional £50.0 million.
Individual tranches are drawn down, in sterling, for periods of up to six
months at SONIA rates of interest prevailing at the time of drawdown, plus the
credit adjustment spread and the applicable margin. The margin on the
facility ranges between 1.45% and 2.45% and was 1.45% at 31 December 2022.
Margin is determined on the achievement of leverage ratios.
The secured bank loans are stated net of unamortised issue costs of £0.5
million (2021: £0.1 million) of which £0.2 million is included within
current borrowings (2021: £0.1 million) and £0.3 million is included within
non-current borrowings (2021: £nil).
The Group has two net overdraft facilities for £5.0 million and £3.0 million
with two of its principal bankers (2021: £5.0 million and £3.0 million).
As at 31 December 2022, the Group has in place the following hedging
arrangements which have the effect of replacing SONIA with fixed rates as
follows:
§ for £15.0 million of borrowings, SONIA plus 0.1193% Credit Adjustment
Spread is replaced with 0.805% from 8 January 2020 to 9 January 2023.
Following the equity placing in June 2020, hedge accounting was discontinued
at that date as the Group no longer had any loans for the Group's interest
rate swaps to economically hedge. Hedge accounting has not been resumed.
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.
16 LEASE LIABILITIES
2022 2021
£m £m
Opening liabilities 37.8 40.6
New leases recognised 2.0 1.0
Business combinations - 0.8
Reassessment / modification of leases previously recognised 0.1 1.3
Lease payments (7.1) (7.3)
Disposals - (0.2)
Finance costs 1.5 1.6
Closing liabilities 34.3 37.8
Of which are:
Current lease liabilities 5.1 5.2
Non-current lease liabilities 29.2 32.6
Closing liabilities 34.3 37.8
The reassessment / modification of leases relates to rent increases and
extensions to lease terms that have been agreed during the year.
17 PROVISIONS
2022 2021
£m £m
Restated
Opening provisions 5.7 5.8
Additions 1.2 2.0
Utilised during the year (1.0) (0.5)
Released during the year - (1.6)
Closing provisions 5.9 5.7
Of which are:
Current provisions 5.1 4.8
Non-current provisions 0.8 0.9
Closing provisions 5.9 5.7
A £4.3 million provision has been recognised as at 31 December 2021 in
respect of third party claims made against the Group, but which are
indemnified under the terms of its insurance policies. A corresponding
reimbursement asset of £4.3 million has also been recognised as at 31
December 2021. As the Group expects, on average, insurance claims to be
settled within one year, which is driven by a review of the historic claims
data, recognition of these balances is made with current assets and current
liabilities. The impact on the brought forward balance sheet as at 1 January
2021 would be the inclusion of a £2.5 million provision and a corresponding
reimbursement asset of £2.5 million. The balance of the provision as at 31
December 2022 is £4.5 million.
Other provisions relate to property-related obligations and self-insurance
costs.
18 POST-EMPLOYMENT BENEFIT OBLIGATIONS
The Group has applied the requirements of IAS 19, 'Employee Benefits' (revised
June 2011) to its employee pension schemes and post-retirement healthcare
benefits. 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.
As part of the Group's objective to reduce its overall pension deficit,
deficit recovery payments of £1.9 million (2021: £1.9 million) were paid to
the JGDBS. A remeasurement and experience loss of £10.0 million has been
recognised in the year to 31 December 2022 (2021: £11.0 million gain).
The gross post-employment benefit obligation and associated deferred income
tax asset thereon is shown below:
2022 2021
£m £m
Gross post-employment benefit obligation 10.2 2.1
Deferred income tax asset thereon (2.6) (0.4)
Net liability 7.6 1.7
The reconciliation of the opening gross post-employment benefit obligation to
the closing gross post-employment benefit obligation is shown below:
2022 2021
£m £m
Opening gross post-employment benefit obligation (2.1) (14.9)
Notional interest - (0.2)
Deficit recovery payments 1.9 1.9
Utilisation of post-retirement healthcare obligation - 0.1
Remeasurement and experience (losses) / gains (10.0) 11.0
Closing gross post-employment benefit obligation (10.2) (2.1)
19 ANALYSIS OF NET DEBT
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 the recognition of lease liabilities entered into during the year.
At 31 December 2021 Cash Flow At 31 December 2022
Non-cash
Changes
£m £m £m £m
Debt due within one year 0.1 0.3 (0.2) 0.2
Debt due after more than one year (18.0) 3.4 (0.1) (14.7)
Lease liabilities (See note 16) (37.8) 5.6 (2.1) (34.3)
Total debt and lease financing (55.7) 9.3 (2.4) (48.8)
Cash and cash equivalents (4.4) 5.2 - 0.8
Net debt (60.1) 14.5 (2.4) (48.0)
At 31 December 2020 Cash Flow At 31 December 2021
Non-cash
Changes
£m £m £m £m
Debt due within one year 0.2 1.5 (1.6) 0.1
Debt due after more than one year 0.2 (18.0) (0.2) (18.0)
Lease liabilities (See note 16) (40.6) 5.7 (2.9) (37.8)
Total debt and lease financing (40.2) (10.8) (4.7) (55.7)
Cash and cash equivalents 6.6 (11.0) - (4.4)
Net debt (33.6) (21.8) (4.7) (60.1)
19 ANALYSIS OF NET DEBT (continued)
The cash and cash equivalents figures are comprised of the following balance
sheet amounts:
2022 2021
£m £m
Cash (Current assets) 6.1 5.2
Overdraft (Borrowings, Current liabilities) (5.3) (9.6)
0.8 (4.4)
Lease liabilities are comprised of the following balance sheet amounts:
2022 2021
£m £m
Amounts due within one year (Lease liabilities, Current liabilities) (5.1) (5.2)
Amounts due after more than one year (Lease liabilities, Non-current (29.2) (32.6)
liabilities)
(34.3) (37.8)
20 RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
2022 2021
£m £m
Increase / (decrease) in cash in the year 5.2 (11.0)
Decrease / (increase) in debt and lease financing 9.3 (10.8)
Change in net debt resulting from cash flows 14.5 (21.8)
Debt acquired through business acquisitions - (2.3)
Lease liabilities recognised during the period (2.1) (2.1)
Non-cash movement in unamortised bank facility fees (0.3) (0.3)
Movement in net debt 12.1 (26.5)
Opening net debt (60.1) (33.6)
Closing net debt (48.0) (60.1)
21 SHARE CAPITAL
2022 2021
Issued and Fully Paid Shares £m Shares £m
Ordinary shares of 10p each:
- At start of year 445,256,639 44.5 444,211,100 44.4
- Share buybacks Note a (6,105,293) (0.6) - -
- New shares issued Note b - - 1,045,539 0.1
- At end of year 439,151,346 43.9 445,256,639 44.5
Note a: In September 2022, the Group announced that it was commencing a
share buyback programme to repurchase up to £27.5 million (excluding
expenses) of its own shares. During the year, 6,222,227 (2021: nil) ordinary
shares with a total nominal value of £622,222 (2021: £nil) were bought back
by the Company for a total consideration including transaction costs of £5.7
million, of which £5.6 million was expended during the year with £0.1
million remaining within Trade and other payables at 31 December 2022 (2021:
£nil), which represents an average price of 91.4p per share. The total
shares purchased to 31 December 2022 represent 1.4% of the Company's share
capital. At 31 December 2022, 6,105,293 (2021: nil) ordinary shares with a
total nominal value of £610,529 (2021: £nil) had been cancelled. The
remaining 116,934 ordinary shares were held as Treasury shares until they were
subsequently cancelled on 3 January 2023.
Note b: In the prior year, 560,000 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 £56,000. At the time of
allotment, the EBT already held 8,388 Ordinary shares of 10 pence each which,
together with the 560,000 newly allotted Ordinary shares of 10 pence each,
were used to satisfy the exercise of 559,364 LTIP options. In addition,
485,539 SAYE Scheme options were exercised with a total nominal value of
£48,554.
21 SHARE CAPITAL (continued)
The total payments made / proceeds received on allotment in respect of the
above transactions were (debited) / credited as follows:
2022 2021
£m £m
Share capital (0.6) 0.1
Share premium - 0.5
Capital redemption reserve 0.6 -
Retained earnings (5.6) -
(5.6) 0.6
22 DISCONTINUED OPERATIONS
During the year, a provision against deferred consideration of £0.2 million
was released relating to the sale of the Facilities Management division in
August 2013.
Details of transactions in the prior year were disclosed in the Group's 2021
Annual Report.
Income Statement
The Income Statement from discontinued operations included within the
Consolidated Income Statement are as follows:
2022 2021
£m £m
Adjusted operating profit from discontinued operations 0.2 -
Exceptional items - 1.6
- Property provision
- Indemnity settlement - (1.6)
Operating profit 0.2 -
Taxation - (0.3)
Retained profit / (loss) from discontinued operations 0.2 (0.3)
Cash Flows
The cash flows from discontinued operations included within the Consolidated
Statement of Cash Flows are as follows:
2022 2021
£m £m
Net cash generated from operating activities 0.2 -
Net cash used in investing activities - (3.6)
Net cash flow from / (used in) discontinued operations 0.2 (3.6)
23 EVENTS AFTER THE REPORTING PERIOD
On 13 February 2023, we completed the acquisition of the entire issued share
capital of Regency Laundry Limited ('Regency') for a cash consideration of
£5.75 million on a debt free, cash free basis and subject to an adjustment
for normalised working capital.
The unaudited revenue of Regency in the year ending 31 December 2022, as
reported in its management accounts, was £6.1 million.
24 PRINCIPAL RISKS AND UNCERTAINTIES
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.
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
March and August meetings, or more frequently should new matters arise.
Throughout 2022, the overall risk environment remained largely unchanged from
that reported within the Group's 2021 Annual Report.
Risk Appetite
The Board interprets appetite for risk as the level of risk that the Company
is willing to take in order to meet its strategic goals. The Board
communicates its approach to, and appetite for, risk to the business through
the strategy planning process and the internal risk governance and control
frameworks. In determining its risk appetite, the Board recognises that a
prudent and robust approach to risk assessment and 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.
Emerging Risks
The Board has established processes for identifying emerging risks, and
horizon scanning for risks that may arise over the medium to long term.
Emerging and potential changes to the Group's risk profile are identified
through the Group's risk governance frameworks and processes, and through
direct feedback from management, including changing operating conditions,
market and consumer trends.
Principal Risks and Uncertainties
The principal risks and uncertainties affecting the Group are summarised
below:
§ Economic and Political Conditions § Health & Safety
§ Cost Inflation § Compliance and Fraud
§ Failure of Strategy § Insufficient Processing Capacity
§ Recruitment, Retention and Motivation of Employees § Customer Sales and Retention
§ Loss of a Processing Facility § Information Systems and Technology
§ Competition and Disruption § Climate Change and Energy Costs
§ Pandemic or Other National Crisis
Full details of the above risks, together with details on how the Board takes
action to mitigate each risk, will be provided in our 2022 Annual Report.
These risks and uncertainties do not comprise all of the risks that the Group
may face and are not necessarily listed in any order of priority. Additional
risks and uncertainties not presently known to the Board, or deemed to be less
material, may also have an adverse effect on the Group.
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.
25 STATEMENT OF DIRECTORS' RESPONSIBILITIES IN RESPECT
OF THE FINANCIAL STATEMENTS
The Directors are responsible for preparing the Annual Report and the
financial statements in accordance with applicable law and regulations.
Company law requires the Directors to prepare financial statements for each
financial year. Under that law the Directors have to prepare the Group and
Company financial statements in accordance with UK-adopted international
accounting standards. 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 Company and of the profit or
loss of the Group for that period.
In preparing the financial statements, the Directors are required to:
§ select suitable accounting policies and then apply them consistently;
§ make judgments and accounting estimates that are reasonable and prudent;
and
§ state whether applicable UK-adopted international accounting standards
have been followed, subject to any material departures disclosed and explained
in the financial statements.
The Directors are responsible for keeping adequate accounting records that are
sufficient to show and explain the Group and Company's transactions and
disclose with reasonable accuracy at any time the financial position of the
Group and Company and enable them to ensure that the financial statements
comply with the Companies Act 2006. They are also responsible for safeguarding
the assets of the Group and 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
corporate and financial information included on the Group's website.
Legislation in the United Kingdom governing the preparation and dissemination
of financial statements may differ from legislation in other jurisdictions.
The Directors are responsible for preparing the Annual Report in accordance
with applicable law and regulations. Having taken advice from the Audit
Committee, the Directors consider that the Annual Report and the financial
statements, taken as a whole, provides the information necessary to assess the
Group and Company's performance, business model and strategy and is fair,
balanced and understandable.
To the best of our knowledge:
§ the Group financial statements, prepared in accordance with UK-adopted
international accounting standards, give a true and fair view of the assets,
liabilities, financial position and profit or loss of the Company and the
undertakings included in the consolidation, taken as a whole; and
§ the Strategic Report and Directors' Report include a fair review of the
development and performance of the business and the position of the Company
and the undertakings included in the consolidation, taken as a whole, together
with a description of the principal risks and uncertainties that they face.
The Directors confirm that:
§ so far as each Director is aware, there is no relevant audit information
of which the Group and Company's auditor is unaware; and
§ the Directors 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 Company's auditor is aware of that
information.
26 PRELIMINARY ANNOUNCEMENT
A copy of this Preliminary Announcement is available on request to all
Shareholders by post from the Company Secretary, Johnson Service Group PLC,
Johnson House, Abbots Park, Monks Way, Preston Brook, Cheshire, WA7 3GH. The
announcement can also be accessed on the Internet at www.jsg.com.
The 2022 Annual Report will be made available on the Group's website
(www.jsg.com) on or before 20 March 2023.
27 APPROVAL
The Preliminary Announcement was approved by the Board of Directors on 6 March
2023.
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