REG - Johnson Service Grp. - Preliminary Results
05/03/2024 07:00
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RNS Number : 5477F Johnson Service Group PLC 05 March 2024
5 March 2024
AIM: JSG
Johnson Service Group PLC
('JSG' or 'the Group')
Preliminary Results for the Year Ended 31 December 2023
Strong FY23 performance and well placed for continued growth in FY24
FINANCIAL PERFORMANCE
§ Total revenue increased by 20.6% to £465.3 million (2022: £385.7
million).
§ Organic revenue up 16.3% compared to 2022.
§ Adjusted EBITDA(1) of £131.5 million (2022: £104.9 million) with a margin
of 28.3% (2022: 27.2%).
§ Adjusted operating profit(1) of £50.5 million (2022: £41.2 million).
§ Operating profit of £43.6 million (2022: £33.3 million).
§ Adjusted profit before taxation(2) of £44.5 million (2022: £38.2
million).
§ Profit before taxation of £37.6 million (2022: £30.3 million).
§ Full year dividend of 2.8 pence (2022: 2.4p).
§ The Board expects 2024 adjusted operating profit(1) to be in line with
current market expectations.
FINANCING
§ Some £33.0 million invested through M&A activity in FY23 with a
further £31.1 million of capital investment across the estate; balance sheet
remains strong with capacity for further investment.
§ £10.0 million share buyback completed in H2; total of £29.8 million
returned to Shareholders in 2023.
§ Bank facility increased to £120.0 million with tenure extended to August
2026.
OPERATIONAL HIGHLIGHTS
§ HORECA volumes continued to improve with increased number of locations
being serviced.
§ Workwear customer retention levels were 91% whilst increased activity from
prospective customers will have a positive impact into 2024.
§ Energy costs remained elevated but less volatile than 2022.
§ Price increases and other actions implemented throughout 2023 to help
offset cost inflation.
§ Acquisition of Regency in February and Celtic Linen in August; both
businesses trading well.
§ New HORECA site in Crawley remains on track to open in the second half of
2024.
§ New depot to be opened in April to enable further expansion into the London
hotel market.
§ Second Sustainability Report published in October 2023 building on The
Johnsons Way launched in February 2022.
§ Carbon, water and plastic reduction targets set for 2024.
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:
"We are pleased to report a strong performance for the year, demonstrating the
resilience of our business model against a backdrop of macroeconomic
pressures, the strength of our relationships with our customers and business
suppliers and the hard work of our employees.
During the year, significant investment has been made across the business with
the improvement of existing sites, a new build to support future growth and
the acquisitions of Regency and Celtic Linen. We remain focused on organic
growth initiatives, optimising operational efficiencies and continuing to
expand our geographical coverage through the successful execution of our
strong M&A pipeline.
2024 has started positively, with a larger business operating in an expanded
geography. Our scale, expertise, operational excellence and strong balance
sheet will allow the business to capitalise on future opportunities.
Given the encouraging start to the year, the Board expects adjusted operating
profit for the year to be in line with current market expectations."
SELL-SIDE ANALYSTS' MEETING
A presentation for sell-side analysts will be held today at 11am, 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
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 capital allowances 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 17.
TRADING PERFORMANCE
Revenue
Total revenue for the year to 31 December 2023 increased by 20.6% to £465.3
million (2022: £385.7 million). Organic revenue increased 16.3% over 2022,
reflecting both an increased volume in hospitality and price increases
implemented throughout the year.
Financial Results
Our 2023 results reflect the increase in revenue offset by the impact of high
inflationary pressures on our cost base, particularly in respect of energy and
labour. Adjusted operating profit margin was 10.9%, reflecting energy and
labour costs, as a percentage of revenue, remaining at an elevated level
compared to 2019. As we continue to improve the recovery of these costs,
through increasing volumes, efficiencies and price increases, the Board
remains of the opinion that the operating margin of each individual Division
can return towards the historic levels achieved in 2019.
Adjusted EBITDA increased by 25.4% to £131.5 million (2022: £104.9 million)
giving a margin of 28.3% (2022: 27.2%). As expected, we saw this improve
from the 26.8% achieved in the first half of the year. Adjusted operating
profit was £50.5 million (2022: £41.2 million), an increase of 22.6%, whilst
adjusted profit before taxation increased by 16.5% to £44.5 million (2022:
£38.2 million).
The exceptional charge of £1.6 million was wholly in respect of costs in
relation to business acquisition activity. The exceptional credit of £0.7
million in 2022 was in respect of a £1.5 million insurance receipt, 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 £43.6 million (2022: £33.3 million)
whilst statutory profit before taxation, after amortisation of intangible
assets (excluding software amortisation) of £5.3 million (2022: £7.2
million), goodwill impairment of £nil (2022: £1.4 million) and the
exceptional items referred to above, increased to £37.6 million (2022: £30.3
million).
Adjusted diluted earnings per share was 7.8 pence (2022: 8.0 pence), noting
that the prior year materially benefitted from the capital allowances
super-deduction. Excluding the benefit of the super-deduction, adjusted
diluted earnings per share was 7.7 pence (2022: 7.2 pence).
Dividend Reflecting Confidence in the Future
An interim dividend of 0.9 pence (2022: 0.8 pence) per share was declared at
the time of announcing our interim results. We are pleased to recommend a
final dividend of 1.9 pence per share, taking the full year dividend to 2.8
pence (2022: 2.4 pence) per share. Dividend cover was 2.75 times, based on
adjusted EPS excluding capital allowances super-deduction, and in line with
our commitment to reduce cover to 2.5 times for full year 2024.
Acquisition of Regency and Celtic Linen
In line with our capital allocation policy, the Group has continued to seek
out and acquire businesses which expand our geographic coverage and are
earnings enhancing. During 2023, we completed the acquisition of Regency
Laundry Limited ('Regency') and Harkglade Limited, along with its wholly owned
subsidiaries Celtic Linen Limited and Millbrook Linen Limited ('Celtic
Linen').
OPERATIONAL REVIEW
Our Businesses
The Group comprises of Textile Rental businesses which trade through a number
of very well recognised brands, servicing the Workwear sector in Great Britain
(GB) and the HORECA (Hotel, Restaurant and Catering) sector in GB and in
Ireland, both North and South. The 'Johnsons Workwear' brand predominantly
provides workwear rental and laundry services to corporates across all
industry sectors in GB. Within HORECA in GB, 'Stalbridge' and 'London Linen'
provide premium linen services to hotel, restaurant, hospitality and corporate
event customers, 'Regency' provides bespoke linen to its four and five-star
luxury hotel customers and 'Johnsons Hotel Linen', our high-volume linen
business, primarily serves corporate independent and budget hotel customers.
Also, within HORECA, our Ireland business, trading as 'Johnsons Belfast' in
Northern Ireland and as 'Celtic Linen' in the Republic of Ireland, serves both
budget and luxury hotel customers and additionally serves a number of
healthcare customers.
The year has seen significant investment in the business, both in terms of
improving existing sites and a new build to support future growth, together
with expanding our range of services and geographical coverage through
acquisition.
Energy
Energy costs (comprising gas, electricity and diesel) have remained volatile
throughout the year and continue to be so, albeit to a lesser extent than
experienced during 2022. Costs for 2023 represented 10.0% of revenue and
were higher than both 2022 and 2019 (2022: 9.4%; 2019: 6.2%).
We have continued our policy of proactively fixing energy prices and, as at
the end of February 2024, we had fixed 96% of our anticipated electricity
usage and 91% of our anticipated gas usage for the first half of 2024 and 90%
and 87%, respectively, for the second half of 2024. In addition, we have
hedged 85% of our anticipated diesel requirement across 2024.
Looking further ahead, we will continue to lock in prices as opportunities
allow. For 2025, we currently have, based on our anticipated usage, 62%
electricity, 61% gas and 51% diesel at fixed prices, with reducing amounts
into 2026.
Labour
Labour remains the biggest cost of our operations. In the year to 31
December 2023, labour as a percentage of revenue reduced to 44.0%, compared to
45.1% in the six months to 30 June 2023, 47.0% in the year to 31 December 2022
and 43.0% in the year to 31 December 2019. We remain encouraged by the
improving efficiency as volumes have returned during 2023 but note that
further improvements are challenged by increasing labour rates and a new site
opening in 2024.
Workwear Division
Operating as Johnsons Workwear, we provide workwear rental and laundry
services to customers throughout GB, ranging from small local businesses to
the largest companies covering food related and other industrial sectors.
Revenue for the Workwear division increased by 5.9% to £142.6 million (2022:
£134.6 million). Adjusted EBITDA was £48.6 million (2022: £46.6 million)
with a margin of 34.1% (2022: 34.6%). Adjusted operating profit was £21.4
million (2022: £21.9 million), noting that the prior year did benefit from a
£1.1 million credit relating to the finalisation of the Exeter insurance
claim in respect of additional costs incurred in 2020 and 2021.
Throughout the course of 2023, our focus was directed towards fostering
organic growth within the division. The strategy involved meticulous
planning, innovative initiatives and strategic investment to ensure a
sustainable pathway that aligns with our objectives. Benefitting from this
strategy, the sales team is experiencing notable momentum which has resulted
in increased activity with prospective customers. New sales during the year
reached the highest level since COVID-19 impacted in 2020, with the wins in
the final months of 2023 positively impacting into 2024. Our ability to
assure the microbiological quality of processed textiles allowed the team to
identify and capitalise on new market opportunities, successfully securing a
significant contract within a market sector new to the division. Notably, we
have continued to attract new customers to the benefits of a textile rental
service, with new-to-rental customers representing 25% of our total new sales
sold in the year.
Our sustained commitment to enhancing customer service has yielded tangible
results, marked by an improvement in customer satisfaction survey results -
the latest new customer survey reporting at 87.0% and existing customers
reporting 86.2%. This positive shift can be attributed to a dedicated effort
in actively listening and reacting to customer feedback, in addition to
investment in training programmes to further equip our colleagues with the
skills and knowledge needed to deliver exceptional customer service.
Despite economic uncertainties affecting a small percentage of our customer
base, our customer retention remains strong at 91%, highlighting the
effectiveness of our service teams' ability in renewing the contracts of
existing customers.
Our commitment to advanced automation systems saw the successful installation
of a state-of-the-art sortation system at our Hull and Perth sites, boosting
our capacity and increasing efficiency. An extensive refurbishment project
was undertaken across multiple sites, focusing on enhancing environmental
aspects such as lighting, office space and employee welfare facilities. This
project was complemented by our ongoing investment in machinery replacement
programmes. Investment in our commercial fleet has also continued, with the
replacement of forty-three vehicles during the year.
Our procurement department continues to work collaboratively with suppliers
and has implemented measures to safeguard the availability and effectiveness
of essential items, addressing challenges arising from supply chain
disruptions. Notably, a significant milestone was reached during the year
with the successful execution of our garment end-of-life programme which
ensures that some 95% of garments are recycled with the remainder being
repurposed.
HORECA Division
The total revenue for the HORECA division increased by 28.5% to £322.7
million (2022: £251.1 million). Volumes have continued to increase
throughout the year and the division now incorporates the two acquisitions
completed during 2023. On an organic basis, revenue increased by 21.9%,
benefitting from strong customer retention, higher volumes and price increases
implemented across the division in order to help offset the high level of cost
inflation experienced. Following significant investment in the division,
both in terms of improving existing sites and a new build to support future
growth, we are well placed to expand further in this market which an
independent study, commissioned by the Group, estimated the total addressable
market for commercial laundry services to the HORECA industry in Great Britain
to be £1.3 billion.
Adjusted EBITDA for the year increased by 42.4% to £89.7 million (2022:
£63.0 million) with a margin of 27.8% (2022: 25.1%). The adjusted EBITDA
margin in the second half of the year was 29.9%, compared to 25.2% in the
first half. Adjusted operating profit was £36.0 million (2022: £24.1
million). Costs incurred in 2023 in respect of the new Crawley site, which
is not yet operational, amounted to £1.0 million and will continue to have an
impact on margin as volumes start to build from the second half of 2024.
The Hotel, Restaurant and Catering business, which includes Johnsons
Stalbridge and London Linen, has continued to make good progress in 2023.
We have continued to expand and invest in our operating sites. Additional
operating space was created in Grantham, Hayle, Shaftesbury and Wrexham
through a combination of building improvements and extensions. New and
replacement ironer lines came on stream in Glasgow, Grantham, London Linen,
Shaftesbury and Wrexham, processing increased volumes, improving production
efficiency and reducing energy use. Our use of recycled water has further
increased with a now fully operational installation in our Hayle site adding
to the original Shaftesbury installation. We continue to examine where else
this technology can be best implemented going forward.
We have continued to replace plastic shrink wrap with paper banding whilst
Hydrotreated Vegetable Oil, a fossil-free alternative to diesel, is being used
to power a small number of our commercial vehicles. We also have six fully
electric commercial vehicles operating in central London, where mileage and
payloads allow, and all our processing locations have charging points to
support our increasing use of electric vehicles in our company car fleet.
New sales remain strong and, as well as achieving above target independent
sales, we have signed and installed some multi-site group business. These
new wins can be attributed to our reputation for reliability, flexibility and
great service delivery. Our service and quality levels have remained high,
as evidenced in our annual customer survey results which reflected an improved
score of 87.5%, with several of our sites achieving a world class score of
over 90.0%.
Work on our new Crawley site is well underway and remains on course to open in
the second half of 2024. This new location will support the ongoing
successful growth of the business and will promote our commitment to energy
and water usage efficiencies. Of the estimated £16.0 million total capital
investment, some £6.9 million was spent in 2023.
Since its acquisition in February 2023, Regency continues to make good
progress integrating into the wider JSG business and a £1.4 million capital
investment project is underway in the Corsham facility to increase capacity
and site resilience. Efficiency benefits already coming through in reduced
drying times on heavier towelling items are complementing our commitment to
improving energy utilisation.
A website rebrand and strong social media presence, further emphasising the
quality offering of Regency, went live at the end of 2023. We are pleased to
report very strong customer loyalty and retention, whilst also focusing on new
sales growth through direct and digital marketing channels. There have been
some key wins of luxury four and five-star hotels with over 450 rooms added
since acquisition and the geographical reach is being extended east towards
London.
Within Hotel Linen, additional new business, as well as organic growth within
existing contracts, added to volume. Overall volumes during the second half
of 2023 were in line with our expectations. A small number of customers have
continued in their revised practices of changing both beds and towels less
frequently and the number of independent and group hotels either partly or
fully committing to Government contracts and providing accommodation for
refugees was maintained at 2022 levels. We have addressed this change in
practice by continuing to add rooms from both existing and new hotel groups.
A consistent service, with delivery on time and in full, was a key objective
achieved in 2023. Our external Customer Satisfaction survey scored 84.9%
with both our Birmingham and Reading sites achieving a world class score in
excess of 90.0%. Our new Customer Service Visit App was successfully rolled
out, enabling effective real-time feedback from customers. Key performance
indicators of shortages and rejects were both below 1%. All new business was
installed professionally and efficiently, with excellent feedback from
customers.
Our local and national service teams continue to build strong relationships
with all customers, with continued positive feedback regarding the online
Linen Room and Customer Portal. Price negotiations have been challenging
although customers have been understanding and supportive with regard to our
cost increases, which is a reflection of our partnership approach.
We have continued to invest in our employee welfare facilities and targeted
investment, with a focus on reducing energy and water usage and improving
production efficiencies, across the estate through the installation of various
items of equipment. A robotic towel folder has recently been installed in
Bourne and early indications on its performance are encouraging. Dynamic
production data capture has been installed in three sites, with the remaining
to follow in the first half of 2024. Furthermore, processing capacity in our
Bourne facility will be increased in the first quarter of 2024 with some £3.0
million invested in the site. Lead times for new vehicles improved during
the year with some 60 vehicles delivered, including a new double decker
trailer and tractor unit, with another two for delivery in the first half of
2024.
The overall business intelligence, data gathering, reporting and benchmarking
continues to be developed with further plans for 2024. Improving the
customer experience remains a key focus with all departments demonstrating
excellent teamwork to achieve our objectives.
Following the acquisition of Celtic Linen in August 2023, the management of
Johnsons Belfast has been integrated with that of Celtic Linen so that the
service in Ireland, both North and South, achieves optimum levels. The
process of integrating Celtic Linen into the wider JSG family is progressing
well and the developments and changes have been welcomed by the team.
Post-acquisition trading levels at Celtic Linen were slightly ahead of our
expectations, with the hospitality season performing well post the summer.
This was also complemented by the installation of new business in November and
December in the form of some 1,200 new rooms. Healthcare continued at
expected levels and supply was fully met over the busy Christmas period, with
hospitals running at full capacity. A maintained strong focus on customer
service levels resulted in customer satisfaction ratings remaining
consistently high and customer retention remains very strong.
The capital investment plan for Celtic Linen's Wexford site, which was
underway at the time of acquisition, was completed in the final quarter of the
year. The installation of the new equipment increases capacity and
resilience of the site with the focus on best-in-class processing and energy
efficiency. Additional investment in our Belfast site was largely completed
during 2023 with additional improvements to the offices planned for 2024.
The previously announced 12% increase to the statutory minimum wage in the
Republic of Ireland, effective 1 January 2024, coupled with other changes in
employment costs has led to some challenges in what was already a very
competitive labour market and we are working through the implications of this
with both our customers, in terms of price increases, and internally reviewing
our processes to ensure maximum efficiency.
SUSTAINABILITY
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
sustainability targets for 2030, and we have since published subsequent
Sustainability Reports in February 2022 and October 2023. All documents can
be found on our website at www.jsg.com.
We have continued to build on the foundations of our sustainability strategy
with communication and involvement of employees at all levels being a key
focus.
Further details of our achievements during 2023 and our targets for 2024,
ongoing initiatives and actions for the future will be set out within the
Group's 2023 Annual Report.
EMPLOYEES
We would like to welcome all new employees to the Group, particularly those
that have joined us through acquisition. Our employees are the foundation of
our business and are key in our ability to deliver customer service levels
which exceed our customers' expectations. The teamwork, dedication and
determination demonstrated in order to deliver a professional and on time
service to our customers is a credit to each and every one of them. The
Board would like to thank them for their support, hard work and significant
contribution to the success of the business over the last 12 months.
Training, educating and developing our employees to their fullest potential
remains a key focus of the Group. New training programmes have been
implemented to enhance core skills and to provide an environment to support
clear pathways for career advancement and succession planning.
Our commitment to employee engagement, fostering a positive work environment
and improving employee wellbeing has continued throughout the year. Numerous
initiatives have been rolled out during the year and, within the UK, we were
delighted that the results from the latest Employee Engagement surveys showed
a positive trend and an overall improvement on the previous year. A further
survey will be undertaken in the final quarter of 2024 and will also be rolled
out to our new colleagues at Celtic Linen and Regency.
OUTLOOK
Our scale, expertise and operational excellence mean that we are well placed
to capitalise on opportunities and the Board remains confident about the
growth opportunities available to the Group.
Whilst economic challenges and their impact on customer behaviour remain
difficult to predict, we have a resilient business model to help mitigate
these challenges and to address inflationary pressures which continue to
impact the business. We have continued to fix a proportion of our future
energy costs and improve the efficiency of our sites to help offset and
stabilise our cost base and we are continuing to engage with our customers
regarding the pricing of our services as we advance through 2024. New sales
across the business are a focus, particularly in the regions where we are
adding capacity.
We have started 2024 positively, with a larger business operating in an
expanded geography. We are continuing to focus on expanding the Group
through targeted investment in our existing sites together with identifying
earnings enhancing acquisition opportunities. We have a strong balance sheet
to support these plans.
Given the encouraging start to the year, the Board expects adjusted operating
profit for the year to be in line with current market expectations.
Peter Egan
Chief Executive Officer
4 March 2024
FINANCIAL REVIEW
FINANCIAL RESULTS
Total revenue for the year to 31 December 2023 increased to £465.3 million
(2022: £385.7 million).
Adjusted EBITDA was £131.5 million (2022: £104.9 million) giving a margin of
28.3% (2022: 27.2%) and, in-line with management expectations, improving from
the 26.8% margin achieved in the first half of 2023.
Segmental revenue, adjusted EBITDA and adjusted EBITDA margin are as follows:
2023 2022
Adjusted EBITDA Adjusted EBITDA
Revenue Margin Revenue Margin
£m £m % £m £m %
Workwear 142.6 48.6 34.1 134.6 46.6 34.6
HORECA 322.7 89.7 27.8 251.1 63.0 25.1
Central Costs - (6.8) - - (4.7) -
Group 465.3 131.5 28.3 385.7 104.9 27.2
Statutory operating profit was £43.6 million (2022: £33.3 million) whilst
adjusted operating profit was £50.5 million (2022: £41.2 million).
The total finance cost was £6.0 million (2022: £3.0 million) and included
£3.4 million (2022: £1.6 million) of bank interest, £2.1 million (2022:
£1.5 million) of interest in respect of IFRS 16 lease liabilities and £0.5
million (2022: £nil) in respect of notional interest on pension liabilities.
The exceptional charge of £1.6 million (2022: £0.7 million credit) are costs
in relation to business acquisition activity. In 2022, the exceptional
credit related to another receipt of £1.5 million of insurance proceeds,
relating to the final receipt for capital items and property costs in relation
to the 2020 Exeter site fire, offset by costs of £0.8 million in relation to
Exeter site clearance costs.
Adjusted profit before taxation was £44.5 million (2022: £38.2 million).
Statutory profit before taxation, after amortisation of intangible assets
(excluding software amortisation) of £5.3 million (2022: £7.2 million) and
exceptional items of £1.6 million (2022: £0.7 million credit), was £37.6
million (2022: £30.3 million).
Adjusted diluted earnings per share was 7.8 pence (2022: 8.0 pence).
Excluding the benefit of the capital allowances super-deduction, which had
limited impact in 2023, the adjusted diluted earnings per share was 7.7 pence
(2022: 7.2 pence).
FINANCING
Bank debt at the end of the year was £61.7 million (December 2022: £13.7
million) reflecting the improved trading performance, continuing significant
capital investment, the acquisition of Regency and Celtic Linen and a cash
outflow of £29.9 million in respect of the share buyback programmes completed
in the year. Including IFRS 16 liabilities, net debt at December 2023 was
£104.9 million (December 2022: £48.0 million).
The Group remains well funded, with access to a committed revolving credit
facility of £120.0 million which matures in August 2026. The terms of the
facility provide an option to extend the term for up to a further year and an
option to increase the facility by up to a further £15.0 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 2023 was 0.77 times. Interest
cover compares adjusted operating profit 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 or, in the case of
Euro denominated borrowings, EURIBOR, 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 the adjusted profit before taxation was 25.8% (2022: 6.8%).
The rate is above the headline corporation tax rate in the UK of 23.5% due to
the effect of expenses not deductible for taxation and short-term timing
differences, offset by the tax rate in ROI being 12.5%. The rate is
materially higher than the rate in 2022 which was significantly impacted by
the capital allowances super-deduction of 130% of capital spend. The
super-deduction allowance, which resulted in a permanent reduction in the tax
charge whilst in operation, ended on 31 March 2023 and had little impact on
the 2023 tax rate.
Corporation tax paid in the year amounted to £1.6 million compared to a
refund of £3.5 million in 2022 which was in respect of prior year tax
losses. The announcement of full expensing rules for UK capital expenditure
from 1 April 2023 will reduce the cash tax payable by the Group below the tax
charge whilst those rules remain in place.
DIVIDEND
The Board declared an interim dividend of 0.9 pence (2022: 0.8 pence) per
share in September 2023. The proposed final dividend of 1.9 pence per share
brings the total dividend for 2023 to 2.8 pence (2022: 2.4 pence) per share.
The final dividend, if approved by Shareholders, will be paid on 10 May 2024
to Shareholders on the register at close of business on 12 April 2024. The
ex-dividend date is 11 April 2024. Dividend cover, based on adjusted EPS
excluding capital allowances super-deduction, was 2.75 times and it remains
the Board's current intention to reduce cover 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 £55.2 million compared to £39.1 million in 2022. Of this,
we invested £31.1 million (2022: £22.4 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 in
2022 was £1.5 million received as part of the insurance claim in respect of
capital items.
Free cash flow in 2023 reflected a more normalised level of net working
capital with an outflow of £0.3 million (2022: £8.2 million).
INVESTMENT IN TEXTILE RENTAL ITEMS
Spend on textile rental items amounted to £61.9 million (2022: £52.5
million). The increase reflects the growth of the Group, both organically
and through acquisition. We have long term relationships with our garment
and linen suppliers and we continue to work collaboratively to ensure
continuity of supply of quality products.
CAPITAL INVESTMENT AND ACQUISITIONS
We have continued to invest in plant and equipment, spending £31.1 million in
the year. The spend includes £6.9 million in respect of the new Crawley
site, with a further £9.1 million expected to be invested in the site in
2024. We are continuing with our programme of investing in our sites to
expand capacity, increase water and energy efficiencies and improve employee
welfare facilities.
The £5.75 million acquisition of Regency in February 2023 was a further step
in expanding our range of services to four and five-star luxury hotel
customers. Investment of some £1.4 million is underway in the Regency site
in Corsham to expand its processing capacity and increase resilience.
In August 2023 we acquired the Celtic Linen business in the Republic of
Ireland for a consideration of €31.5 million (£27.1 million). Capital
investment at Wexford, which was ongoing at the time of acquisition, and had
been initially recognised as a lease liability of £1.1 million by Celtic
Linen, was paid in September 2023.
DEFINED BENEFIT PENSION SCHEME LIABILITIES
On an IAS 19 basis, the Scheme deficit as at 31 December 2023 was £nil (2022:
£7.1 million deficit (net of deferred taxation)). Scheme assets had reduced
by £2.8 million, to £145.4 million, after paying out benefits of £10.3
million during the year whilst Scheme liabilities had reduced by £12.2
million to £145.4 million. The improved position reflects the results of the
triennial actuarial valuation of the Scheme, as at 30 September 2022, and the
payment of deficit recovery contributions offset, to a lesser extent, by
adverse inflation experience and lower than expected asset returns over the
period. As a result of the deficit being nil, the estimated net notional
interest cost in 2024 will be £nil (2023: £0.5 million).
The triennial actuarial valuation of the Scheme, which is prepared on a
"technical provisions" basis, was completed during the year and showed that
the Scheme had a surplus of £6.3 million at that time. In order to reduce
the value of risk of the Scheme, a 75% target for the interest rate and
inflation hedge ratios remains in place and is subject to ongoing review.
The Scheme's asset allocation remains under constant review to ensure it
aligns with the medium-term objective of a buy-out of Scheme liabilities.
In view of the Scheme surplus shown at the valuation date, we have agreed with
the Trustee that the deficit recovery payment of £1.9 million per annum,
which was being paid in equal monthly instalments, ceased from the end of
October 2023 and will be reviewed again at the time of the valuation as at 30
September 2025.
RETURN ON CAPITAL EMPLOYED (ROCE)
ROCE, calculated as rolling 12-month adjusted operating profit divided by the
average of opening and closing Shareholders' equity, net debt and
post-employment benefit obligations, increased to 13.9% at 31 December 2023
(2022: 12.2%).
CAPITAL STRUCTURE AND SHARE BUYBACK PROGRAMME
The Group maintains a strong Balance Sheet. The reduction in net assets to
£279.1 million (2022: £284.6 million) is reflective of the share buy-back
programmes completed during 2023 which reduced Retained Earnings by £29.8
million
The Group's medium to long-term intention is to return the capital structure
such that we target leverage of 1.0x - 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 an ongoing 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 Group has undertaken two recent share buyback programmes which, in the
period September 2022 to November 2023, utilised cash of £35.5 million, of
which £29.9 million was utilised in the twelve months ended 31 December 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 2025. 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. In
addition, the adjusted diluted earnings per share excluding the impact of the
capital allowances super-deduction also formed part of the assessment. ROCE
is also used as part of the assessment of performance of the Group.
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
4 March 2024
CONSOLIDATED INCOME STATEMENT
Year ended Year ended
31 December 31 December
2023 2022
Note £m £m
Revenue 2 465.3 385.7
Impairment loss on trade receivables (1.7) (0.9)
All other costs (420.0) (351.5)
Operating profit 2 43.6 33.3
Operating profit before amortisation of intangible assets 2 50.5 41.2
(excluding software amortisation), goodwill impairment and exceptional items
Amortisation of intangible assets (excluding software amortisation) (5.3) (7.2)
Goodwill impairment - (1.4)
Exceptional items 3 (1.6) 0.7
Operating profit 2 43.6 33.3
Finance cost 4 (6.0) (3.0)
Profit before taxation 37.6 30.3
6 (10.4) (1.5)
Taxation charge
27.2 28.8
Profit for the year from continuing operations
Profit for the year from discontinued operations 0.1 0.2
Profit for the year attributable to equity holders 27.3 29.0
EARNINGS PER SHARE 8
Basic earnings per share
- From continuing operations 6.4p 6.5p
- From discontinued operations - -
From total operations 6.4p 6.5p
Diluted earnings per share
- From continuing operations 6.4p 6.5p
- From discontinued operations - -
From total operations 6.4p 6.5p
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
2023 2022
Note £m £m
Profit for the year 27.3 29.0
Items that will not be subsequently reclassified to profit or loss
Remeasurement and experience gains / (losses) on post-employment benefit 18 8.8 (10.0)
obligations
Taxation in respect of remeasurement and experience gains / losses (2.2) 2.5
Deferred taxation rate change in respect of remeasurement and experience - 0.1
losses
Items that may be subsequently reclassified to profit or loss
Cash flow hedges (net of taxation) - fair value (losses) / gains (0.5) 1.4
0.4 (2.2)
- transfers to administrative expenses
Net loss on hedge of a net investment (0.3) -
Exchange differences on translation of foreign operations 0.3 -
Total other comprehensive income / (loss) for the year 6.5 (8.2)
Total comprehensive income for the year 33.8 20.8
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 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
Profit for the year - - - - - 27.3 27.3
Other comprehensive income - - - - (0.1) 6.6 6.5
Total comprehensive (loss) / income for the year - - - - (0.1) 33.9 33.8
Share options (value of employee services) - - - - - 1.0 1.0
Share buybacks (2.5) - - 2.5 - (29.8) (29.8)
Deferred tax on share options - - - - - 0.1 0.1
Dividend paid - - - - - (10.6) (10.6)
Transactions with Shareholders recognised directly in Shareholders' equity (2.5) - - 2.5 - (39.3) (39.3)
Balance at 31 December 2023 41.4 16.8 1.6 3.7 (0.6) 216.2 279.1
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 2023 the EBT held 9,024 shares (2022:
9,024). Additionally, at 31 December 2022 and pursuant to the then ongoing
share buyback programme, the Group also held 116,934 treasury shares. See
note 19 for further details.
CONSOLIDATED BALANCE SHEET
As at As at
31 December 31 December
2023 2022
Note £m £m
Assets
Non-current assets
Goodwill 9 144.4 133.8
Intangible assets 10 19.1 10.9
Property, plant and equipment 11 134.5 119.6
Right of use assets 12 40.0 31.7
Textile rental items 13 71.9 63.8
Trade and other receivables 0.4 0.3
410.3 360.1
Current assets
Inventories 1.9 1.8
Trade and other receivables 83.3 61.0
Reimbursement assets 3.9 4.5
Cash and cash equivalents 9.6 6.1
98.7 73.4
Liabilities
Current liabilities
Trade and other payables 92.8 75.7
Borrowings 14 8.3 5.1
Current income tax liabilities 0.5 0.2
Lease liabilities 15 5.5 5.1
Derivative financial liabilities 0.6 0.4
Provisions 4.9 5.1
112.6 91.6
Non-current liabilities
Post-employment benefit obligations 16 0.3 10.2
Deferred income tax liabilities 15.0 1.8
Trade and other payables 0.3 0.3
Borrowings 14 63.0 14.7
Lease liabilities 15 37.7 29.2
Derivative financial liabilities 0.2 0.3
Provisions 0.8 0.8
117.3 57.3
Net assets 279.1 284.6
Equity
Capital and reserves attributable to the company's shareholders
Share capital 19 41.4 43.9
Share premium 16.8 16.8
Merger reserve 1.6 1.6
Capital redemption reserve 3.7 1.2
Hedge reserve (0.6) (0.5)
Retained earnings 216.2 221.6
Total equity 279.1 284.6
The notes on pages 20 to 37 form an integral part of these condensed
consolidated financial statements. The condensed consolidated financial
statements on pages 16 to 37 were approved by the Board of Directors on 4
March 2024 and signed on its behalf by:
Yvonne Monaghan
Chief Financial Officer
CONSOLIDATED STATEMENT OF CASH FLOWS
Year ended Year ended
31 December 31 December 2022
2023 £m
Note £m
Cash flows from operating activities
Profit for the year 27.3 29.0
Adjustments for:
Taxation charge / (credit) - continuing 6 10.4 1.5
Total finance cost 4 6.0 3.0
Depreciation 80.6 63.5
Amortisation 10 5.7 7.4
Goodwill impairment 9 - 1.4
(Profit) / loss on disposal of property, plant and equipment (0.1) (0.2)
Decrease in inventories 0.4 0.4
Increase in trade and other receivables (10.2) (12.9)
Increase in trade and other payables 9.5 4.3
Deficit recovery payments in respect of post-employment benefit obligations (1.6) (1.9)
Share-based payments 1.0 0.8
Decrease in provisions (0.3) (0.1)
Commodity swaps not qualifying as hedges - (0.1)
Income re insurance claims - (1.5)
Cash generated from operations 128.7 94.6
Interest paid (5.7) (3.6)
Taxation paid (1.6) 3.5
Net cash generated from operating activities 121.4 94.5
Cash flows from investing activities
Acquisition of businesses (net of cash acquired) 20 (29.7) -
Purchase of other intangible assets - (1.3)
Purchase of property, plant and equipment (31.1) (22.1)
Income re insurance claims - 1.5
Purchase of software - (0.3)
Proceeds from sale of property, plant and equipment 0.2 0.4
Purchase of textile rental items (61.9) (52.5)
Proceeds received in respect of special charges 13 3.3 2.7
Net cash used in investing activities (119.2) (71.6)
Cash flows from financing activities
Proceeds from borrowings 100.6 48.0
Repayment of borrowings (54.6) (51.0)
Capital element of leases (7.6) (5.6)
Share buyback 19 (29.9) (5.6)
Dividends paid to company shareholders 7 (10.6) (3.5)
Net cash used in financing activities (2.1) (17.7)
Net increase in cash and cash equivalents 0.1 5.2
Cash and cash equivalents at beginning of year 0.8 (4.4)
Cash and cash equivalents at end of year 17 0.9 0.8
Cash and cash equivalents comprise:
Cash 9.6 6.1
Overdraft (8.7) (5.3)
Cash and cash equivalents at end of year 0.9 (0.8)
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 and Republic
of Ireland.
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.
The financial information has been prepared using accounting policies
consistent with those set out in the 2022 Annual Report.
The financial information set out within this Preliminary Announcement does
not constitute the Company's statutory accounts for the years ended 31
December 2023 or 31 December 2022 within the meaning of Section 434 of the
Companies Act 2006 but is derived from those accounts.
Statutory accounts for 2022 have been delivered to the Registrar of Companies
and those for 2023 will be delivered as soon as practicable, but not later
than 30 April 2024. 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 financial statements. The process and key judgments in
coming to this conclusion are set out below.
The Group's business activities, together with the factors likely to affect
its future development, performance and position are set out in the Chief
Executive's Operating Review. The financial position of the Group, its cash
flows, liquidity position and borrowing facilities are described in 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 2025 (the assessment
period). The Directors consider this to be a reasonable period for the going
concern assessment as it enables them 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 70% of 2023 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 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 £120.0
million (the 'Facility') which matures in August 2026. The terms of the
Facility provide an option to extend the term for a further year and an option
to increase the Facility by up to a further £15.0 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 2025. 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.
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 operating profit 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 capital allowances super-deduction', an
additional measure introduced for 2023 and 2022 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 capital allowances
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 capital allowances super-deduction - note 8
§ Adjusted net debt - note 17
2 SEGMENT ANALYSIS
Segment information is presented based on the Group's management and internal
reporting structure as at 31 December 2023.
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, Hotel Linen, and following the acquisitions completed in the year,
Regency and Ireland businesses (to include Celtic Linen and Lilliput), each of
which are a separate operating segment.
The CODM's rationale for aggregating the Stalbridge, Hotel Linen, Regency and
Ireland 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 23 to 24.
2 SEGMENT ANALYSIS (continued)
Year ended 31 December 2023 All Other Segments Total
Workwear HORECA
£m £m £m £m
Revenue
Rendering of services 138.9 322.6 - 461.5
Sale of goods 3.7 0.1 - 3.8
Total revenue 142.6 322.7 - 465.3
Result
Operating profit / (loss) before amortisation of intangible assets (excluding 21.4 36.0 (6.9) 50.5
software amortisation) and exceptional items
Amortisation of intangible assets (excluding software amortisation) (0.4) - (5.3)
(4.9)
Exceptional items - (1.6) - (1.6)
Operating profit / (loss) 21.0 29.5 (6.9) 43.6
Total finance cost (6.0)
Profit before taxation 37.6
Taxation charge (10.4)
Profit for the year from continuing operations 27.2
Profit for the year from discontinued operations 0.1
Profit for the year attributable to equity holders 27.3
All of the above revenues are generated in the United Kingdom, with the
exception of £11.0 million generated within the Republic of Ireland.
All Other Segments Total
Workwear
HORECA
£m £m £m £m
Balance sheet information
Segment assets 152.1 345.9 1.4 499.4
Unallocated assets: 9.6
Cash and cash equivalents
Total assets 509.0
Segment liabilities (43.5) (95.2) (3.3) (142.0)
Unallocated liabilities: Bank borrowings (71.3)
(0.8)
Derivative financial liabilities
(0.3)
Post-employment benefit obligations
(0.5)
Current income tax liabilities
(15.0)
Deferred income tax liabilities
Total liabilities (229.9)
Other information
Non-current asset additions
- Property, plant and equipment 6.1 20.8 - 26.9
- Right of use assets (including reassessment / modification) 2.7 10.6 0.1 13.4
- Textile rental items 23.5 37.5 - 61.0
Depreciation, impairment and amortisation expense
- Property, plant and equipment 5.9 15.1 - 21.0
- Right of use assets depreciation 2.5 4.0 0.1 6.6
- Textile rental items depreciation 18.5 34.5 - 53.0
- Capitalised software 0.3 0.1 - 0.4
- Customer contracts 0.4 4.9 - 5.3
With the exception of non-current assets of £11.3 million (2022: £nil) which
were located in the Republic of Ireland, all non-current assets of the Group
reside in the Group's country of domicile, the United Kingdom
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 of the above revenues are generated in the United Kingdom, with the
exception of £0.5 million generated within the Republic of Ireland.
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 (including reassessment / modifications) 0.8 1.3 - 2.1
- 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
All non-current assets of the Group reside in the Group's country of domicile,
the United Kingdom
3 EXCEPTIONAL ITEMS
2023 2022
£m £m
Costs in relation to business acquisition activity (1.6) -
Insurance claims - 1.5
Other costs re insurance claims - (0.8)
Total exceptional items (1.6) 0.7
The exceptional items shown above are all included within administrative
expenses.
Current year exceptional items
During the year, professional fees of £1.4 million were incurred relating to
the acquisitions of Regency and Celtic Linen, of which £1.2 million were paid
in the year. Further information relating to the acquisitions is provided in
note 34. A further £0.2 million was incurred and paid in respect of other
business acquisition related activities.
Prior year exceptional items
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 prior year in
respect of this insurance claim, relating to capital items. In addition,
costs of £0.8 million were incurred in respect of the demolition of the
destroyed site and preparing the site for sale.
4 FINANCE COST
2023 2022
£m £m
Interest payable on bank loans and overdrafts 3.1 1.3
Gain on interest rate swaps not qualifying as hedges - (0.1)
Amortisation of bank facility fees 0.3 0.3
Finance costs on lease liabilities relating to IFRS 16 (note 15) 2.1 1.5
Notional interest on post-employment benefit obligations (note 16) 0.5 -
Total finance cost 6.0 3.0
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. Thereafter, any
subsequent change in the fair value of those derivatives was recognised
directly within finance costs, resulting in a £0.1 million credit in 2022.
The Group no longer has any interest rate swaps in place following the final
outstanding interest rate swap ending on 8 January 2023.
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 17.
Adjusted profit before taxation 2023 2022
£m £m
Profit before taxation 37.6 30.3
Amortisation of intangible assets (excluding software amortisation) 5.3 7.2
Goodwill impairment - 1.4
Exceptional items 1.6 (0.7)
Adjusted profit before taxation 44.5 38.2
Taxation thereon (11.5) (2.6)
Adjusted profit after taxation 33.0 35.6
2023 2022
Adjusted EBITDA
£m £m
Operating profit before amortisation of intangible assets 50.5 41.2
(excluding software amortisation), goodwill impairment and exceptional items
Software amortisation 0.4 0.2
Property, plant and equipment depreciation 21.0 18.3
Right of use asset depreciation 6.6 5.9
Textile rental items depreciation 53.0 39.3
Adjusted EBITDA 131.5 104.9
6 TAXATION
2023 2022
£m £m
Current tax
UK corporation tax credit for the year 1.7 -
Adjustment in relation to previous years - 0.3
Current tax charge for the year 1.7 0.3
Deferred tax
Origination and reversal of temporary differences 8.4 3.3
Adjustment in relation to previous years 0.3 (2.1)
Deferred tax charge for the year 8.7 1.2
Total charge for taxation included in the Consolidated Income Statement 10.4 1.5
The tax charge for the year is higher than (2022: lower than) the effective
rate of Corporation Tax in the UK of 23.5% (2022: 19%). A reconciliation is
provided below:
2023 2022
£m £m
Profit before taxation 37.6 30.3
Profit before taxation multiplied by the effective rate of Corporation Tax in 8.8 5.8
the UK
Factors affecting taxation charge for the year:
Non-taxable income - (0.3)
Tax effect of expenses not deductible for tax purposes 0.8 1.1
Current year impact of super-deduction (0.3) (2.9)
Difference in current and deferred taxation rates 0.9 (0.4)
Tax rate differential on non-UK profits (0.1) -
Adjustments in relation to previous years 0.3 (0.9)
Adjustments in relation to previous years - super-deduction - (0.9)
Total charge for taxation included in the Consolidated Income Statement 10.4 1.5
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 £1.0 million (2022: £1.1 million). Taxation in relation to
exceptional items has decreased the charge for taxation on continuing
operations by £0.1 million (2022: £nil).
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 25.0% (2022: 24.6%).
Deferred tax balances in relation to balances held in the Republic of Ireland
have been recognised at 12.5%, in line with the prevailing rate of tax in
2023.
A capital allowance super-deduction, which offered 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 2023. 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
2023 is a credit of £0.3 million (2022: credit of £3.8 million) of which
£nil (2022: £0.9 million) is in relation to adjustments in the prior year
recognised within the Consolidated Income Statement.
During the year, a deferred taxation charge of £2.2 million (2022: £2.6
million credit) has been recognised in Other Comprehensive Income in relation
to post-employment benefit obligations.
7 DIVIDENDS
2023 2022
Dividend per share
Final dividend proposed 1.90p 1.60p
Interim dividend proposed and paid 0.90p 0.80p
2023 2022
Shareholders' funds committed £m £m
Final dividend proposed 7.9 6.8
Interim dividend proposed and paid 3.8 3.5
The Directors propose the payment of a final dividend in respect of the year
ended 31 December 2023 of 1.9 pence per share. This will utilise
Shareholders' funds of £7.9 million and will be paid, subject to Shareholder
approval, on 10 May 2024 to Shareholders on the register of members on 11
April 2024. In accordance with IAS 10, there is no payable recognised at 31
December 2023 in respect of this proposed dividend. The trustee of the EBT has
waived the entitlement to receive dividends on the Ordinary shares held by the
trust.
8 EARNINGS PER SHARE 2023 2022
£m £m
Profit for the financial year from continuing operations attributable to 27.2 28.8
Shareholders
Amortisation of intangible assets from continuing operations (net of taxation) 4.3 6.1
Goodwill impairment (net of taxation) - 1.4
Exceptional costs from continuing operations (net of taxation) 1.5 (0.7)
Adjusted profit from continuing operations attributable to Shareholders 33.0 35.6
Profit from discontinued operations attributable to Shareholders 0.1 0.2
Total profit from all operations attributable to Shareholders 33.1 35.8
No. of No. of
shares shares
Weighted average number of Ordinary shares 424,327,473 444,288,818
Potentially dilutive Ordinary shares 406,218 95,000
Diluted number of Ordinary shares 424,733,691 444,383,818
Basic earnings per share
From continuing operations 6.4p 6.5p
From discontinuing operations - -
From total operations 6.4p 6.5p
Adjustments for amortisation of intangible assets (continuing) 1.0p 1.4p
Adjustment for goodwill impairment (continuing) - 0.3p
Adjustment for exceptional items (continuing) 0.4p (0.2)p
Adjusted basic earnings per share (continuing) 7.8p 8.0p
Adjusted basic earnings per share (discontinued) - -
Adjusted basic earnings per share from total operations 7.8p 8.0p
Diluted earnings per share
From continuing operations 6.4p 6.5p
From discontinuing operations - -
From total operations 6.4p 6.5p
Adjustments for amortisation of intangible assets (continuing) 1.0p 1.4p
Adjustment for goodwill impairment (continuing) - 0.3p
Adjustment for exceptional items (continuing) 0.4p (0.2)p
Adjusted diluted earnings per share (continuing) 7.8p 8.0p
Adjusted diluted earnings per share (discontinued) - -
Adjusted diluted earnings per share from total operations 7.8p 8.0p
Adjusted diluted earnings per share excluding super-deduction (continuing) 7.7p 7.2p
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.
As disclosed in note 6, the current year total taxation credit benefited from
£0.3 million (2022: £3.8 million) of tax credit resulting from the capital
allowances super-deduction, which offered 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 2023 and 2022,
an adjusted diluted earnings per share value excluding this benefit has also
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, as set out in the
Directors' Remuneration Report, 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
12 2023 2022
£m £m
Cost
Brought forward 135.2 135.2
Impact of foreign exchange translation 0.1 -
Business combinations (See note 20) 10.5 -
Carried forward 145.8 135.2
Accumulated impairment losses
Brought forward 1.4 -
Losses in the year - 1.4
Carried forward 1.4 1.4
Carrying amount
Opening 133.8 135.2
Closing 144.4 133.8
During the year, the Group acquired 100% of the share capital of Regency
Laundry Limited ('Regency') and 100% of the share capital of Harkglade
Limited, together with its trading subsidiaries Celtic Linen Limited and
Millbrook Linen Limited (together, 'Celtic Linen'). On acquisition, goodwill
of £3.2 million and £7.3 million, respectively, has been recognised.
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.
10 INTANGIBLE ASSETS
Capitalised software
2023 2022
£m £m
Opening net book value 1.6 1.5
Additions - 0.3
Amortisation (0.4) (0.2)
Closing net book value 1.2 1.6
Other intangible assets
2023 2022
£m £m
Opening net book value 9.3 15.2
Additions - 1.3
Foreign exchange differences 0.1 -
Business combinations (See note 20) 13.8 -
Amortisation (5.3) (7.2)
Closing net book value 17.9 9.3
Other intangible assets comprise of customer contracts and relationships and
brands. During the year to 31 December 2023, the Group recognised £1.4
million and £12.4 million respectively in relation to the acquisition of
Regency and Celtic Linen (2022: £nil).
11 PROPERTY, PLANT AND EQUIPMENT
2023 2022
£m £m
Opening net book value 119.6 113.3
Additions 26.9 24.8
Business combinations (See note 20) 6.4 -
Transfers from right of use assets 2.7 -
Depreciation (21.0) (18.3)
Disposals (0.1) (0.2)
Closing net book value 134.5 119.6
CAPITAL COMMITMENTS
Orders placed for future capital expenditure contracted but not provided for
in the financial statements are shown below:
2023 2022
£m £m
Property, plant and equipment 27.2 11.1
12 RIGHT OF USE ASSETS
2023 2022
£m £m
Opening net book value 31.7 35.5
Additions 9.7 2.0
Business combinations (See note 20) 4.2 -
Transfers to property, plant and equipment (2.7) -
Reassessment / modification of assets previously recognised 3.7 0.1
Depreciation (6.6) (5.9)
Closing net book value 40.0 31.7
The reassessment / modification of assets relates to rental increases and
extensions to lease terms that have been agreed during the year to 31 December
2023 and 31 December 2022 for property and commercial vehicle leases that were
in place at the start of the relevant year.
The transfer of assets to property, plant and equipment represents the
reclassification of the cost and associated depreciation of assets to
property, plant and equipment where the lease was repaid in the year and the
asset is now owned.
13 TEXTILE RENTAL ITEMS
2023 2022
£m £m
Opening net book value 63.8 48.4
Additions 61.0 57.4
Business combinations (See note 20) 3.4 -
Depreciation (53.0) (39.3)
Special charges (3.3) (2.7)
Closing net book value 71.9 63.8
14 BORROWINGS
2023 2022
£m £m
Current
Overdraft 8.7 5.3
Bank loans (0.4) (0.2)
8.3 5.1
Non-current
Bank loans 63.0 14.7
63.0 14.7
71.3 19.8
The maturity of non-current bank loans is as follows:
- Between one and two years - 15.0
- Between two and five years 63.2 -
- Unamortised issue costs of bank loans (0.2) (0.3)
63.0 14.7
The currency of the outstanding bank loans is as follows:
- Sterling 32.0 15.0
- Euros 31.2 -
63.2 15.0
At 31 December 2023, borrowings were secured and drawn down under a committed
facility dated 8 August 2022. The facility comprises a £120.0 million
revolving credit facility (including an overdraft) which runs to August 2026
with a one-year extension option with a further option, both with bank
consent, to increase the facility by up to an additional £15.0 million.
Individual tranches are drawn down, in Sterling or Euros, for periods of up to
six months at SONIA or Euribor rates of interest respectively, 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 2023. Margin is determined on the achievement of
leverage ratios.
The secured bank loans are stated net of unamortised issue costs of £0.6
million (2022: £0.5 million) of which £0.4 million is included within
current borrowings (2022: £0.2 million) and £0.2 million is included within
non-current borrowings (2022: £0.3 million).
The Group has three net overdraft facilities for £5.0 million, £3.0 million
and €1.5 million (£1.3 million) with its three principal bankers (2022:
£5.0 million, £3.0 million and €nil).
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.
15 LEASE LIABILITIES
2023 2022
£m £m
Opening liabilities 34.3 37.8
New leases recognised 9.5 2.0
Business combinations (See note 20) 3.3 -
Reassessment / modification of leases previously recognised 3.7 0.1
Lease payments (9.7) (7.1)
Finance costs 2.1 1.5
Closing liabilities 43.2 34.3
Of which are:
Current lease liabilities 5.5 5.1
Non-current lease liabilities 37.7 29.2
Closing liabilities 43.2 34.3
The reassessment / modification of leases relates to rent increases and
extensions to lease terms that have been agreed during the year.
16 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.
A full actuarial valuation of the JGDBS was carried out as at 30 September
2022 and has been updated to 31 December 2023 by an independent qualified
actuary. The updated actuarial valuation at 31 December 2023 showed that the
scheme has a deficit of £nil (2022: £9.4 million). During the year, no
employer or employee contributions were made (2022: £nil).
The schedule of contributions put in place on 4 August 2020, which superseded
all earlier versions, required deficit recovery payments of £1.9 million per
annum to be paid up to and including December 2026. Following discussions with
the Trustee of the scheme following the finalisation of the full actuarial
valuation, deficit recovery payments ceased from 31 October 2023 in accordance
with a new schedule of contributions dated 31 October 2023. Deficit recovery
payments of £1.6 million (2022: £1.9 million) were made to the Scheme during
the year.
The gross post-employment benefit obligation and associated deferred income
tax asset thereon is shown below:
2023 2022
£m £m
Gross post-employment benefit obligation 0.3 10.2
Deferred income tax asset thereon (0.1) (2.6)
Net liability 0.2 7.6
The reconciliation of the opening gross post-employment benefit obligation to
the closing gross post-employment benefit obligation is shown below:
2023 2022
£m £m
Opening gross post-employment benefit obligation (10.2) (2.1)
Notional interest (0.5) -
Deficit recovery payments 1.6 1.9
Remeasurement and experience gains / (losses) 8.8 (10.0)
Closing gross post-employment benefit obligation (0.3) (10.2)
17 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 2022 Cash Flow Foreign Exchange Adjustments At 31 December 2023
Non-cash
Changes
£m £m £m £m £m
Debt due within one year 0.2 2.0 (1.8) - 0.4
Debt due after more than one year (14.7) (47.6) (0.3) (0.4) (63.0)
Lease liabilities (See note 15) (34.3) 7.6 (16.5) - (43.2)
Total debt and lease financing (48.8) (38.0) (18.6) (0.4) (105.8)
Cash and cash equivalents 0.8 0.1 - - 0.9
Net debt (48.0) (37.9) (18.6) (0.4) (104.9)
At 31 December 2021 Cash Flow Foreign Exchange Adjustments At 31 December 2022
Non-cash
Changes
£m £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 15) (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)
17 ANALYSIS OF NET DEBT (continued)
The cash and cash equivalents figures are comprised of the following balance
sheet amounts:
2023 2022
£m £m
Cash (Current assets) 9.6 6.1
Overdraft (Borrowings, Current liabilities) (8.7) (5.3)
0.9 0.8
Lease liabilities are comprised of the following balance sheet amounts:
2023 2022
£m £m
Amounts due within one year (Lease liabilities, Current liabilities) (5.5) (5.1)
Amounts due after more than one year (Lease liabilities, Non-current (37.7) (29.2)
liabilities)
(43.2) (34.3)
18 RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT
2023 2022
£m £m
Increase in cash in the year 0.1 5.2
(Increase) / decrease in debt and lease financing (38.0) 9.3
Change in net debt resulting from cash flows (37.9) 14.5
Debt acquired through business acquisitions (5.1) -
Lease liabilities recognised during the period (13.2) (2.1)
Non-cash movement in unamortised bank facility fees (0.3) (0.3)
Foreign exchange adjustments (0.4) -
Movement in net debt (56.9) 12.1
Opening net debt (48.0) (60.1)
Closing net debt (104.9) (48.0)
19 SHARE CAPITAL
2023 2022
Issued and Fully Paid Shares £m Shares £m
Ordinary shares of 10p each:
- At start of year 439,151,346 43.9 445,256,639 44.5
- Share buybacks (24,736,223) (2.5) (6,105,293) (0.6)
- At end of year 414,415,123 41.4 439,151,346 43.9
In respect of the two share buyback programmes which were running during the
year, 24,619,289 (2022: 6,222,227) Ordinary shares with a total nominal value
of £2,461,929 (2022: £622,222) were bought back by the Company and cancelled
for a total consideration including transaction costs of £29.8 million (2022:
£5.7 million) which represents an average price of 121.0p per share (2022:
91.1p). The total shares repurchased across the two share buyback programmes
to 31 December 2023 represent 6.9% of the Company's issued share capital
outstanding immediately prior to the commencement of the first share buyback
programme.
At 31 December 2022, 6,105,293 Ordinary shares with a total nominal value of
£610,529 had been cancelled. The remaining 116,934 Ordinary shares were held
as Treasury shares until they were subsequently cancelled, and paid for, on 3
January 2023.
Cash payments in respect of the above transactions were (debited) / credited
as follows:
2023 2022
£m £m
Share capital (2.5) (0.6)
Capital redemption reserve 2.5 0.6
Retained earnings (29.9) (5.6)
(29.9) (5.6)
20 BUSINESS COMBINATIONS
On 13 February 2023, the Group acquired 100% of the share capital of Regency
Laundry Limited ('Regency') for a net consideration of £5.3 million (being
gross consideration of £5.75 million on a debt free, cash free basis, subject
to a normalised level of working capital) plus associated fees. Since
acquisition, Regency has generated a profit of £0.6 million on revenue of
£6.2 million. Had the business been acquired at the start of the period, it
is estimated that a profit of £0.5 million would have been generated on
revenue of £6.8 million.
On 31 August 2023, the Group acquired 100% of the share capital of Harkglade
Limited, together with its trading subsidiaries Celtic Linen Limited and
Millbrook Linen Limited (together, 'Celtic Linen'), for a net consideration of
£25.2 million (being a gross consideration of £27.1 million on a debt free,
cash free basis, subject to a locked box mechanism and a normalised level of
working capital) plus associated fees. Since acquisition, Celtic Linen has
generated a profit of £0.8 million on revenue of £10.3 million. Had the
business been acquired at the start of the period, it is estimated that a
profit of £2.3 million would have been generated on revenue of £30.3
million.
The provisional fair value of assets and liabilities acquired are as follows:
Regency Celtic Total
Linen
£m £m £m
Intangible assets - Goodwill 3.2 7.3 10.5
Intangible assets - Customer contracts and brands 1.4 12.4 13.8
Property, plant and equipment 1.0 5.4 6.4
Right of use assets 1.5 2.7 4.2
Textile rental items 0.5 2.9 3.4
Reimbursement asset - 0.1 0.1
Unissued textile rental stock - 0.5 0.5
Trade and other receivables 0.8 5.4 6.2
Cash and cash equivalents 0.2 0.6 0.8
Trade and other payables (1.1) (6.0) (7.1)
Borrowings (0.2) (1.6) (1.8)
Lease Liabilities (1.6) (1.7) (3.3)
Provisions - (0.7) (0.7)
Current income tax liability - (0.1) (0.1)
Deferred income tax liability (0.4) (2.0) (2.4)
Net consideration 5.3 25.2 30.5
Goodwill represents the deferred income tax arising on the recognition of the
customer contracts, customer relationships and brand names, plus the expected
benefits to the wider Group arising from the acquisition. None of the
acquired goodwill is expected to be deductible for tax purposes.
Regency has been included within the HORECA reporting segment and is a
standalone CGU. Celtic Linen has been included in the HORECA reporting
segment and has formed an 'Ireland' CGU along with our 'Johnsons Belfast'
business.
Cash flows from business acquisition activity
The cash flows in relation to business acquisition activity are summarised
below:
2023 2022
£m £m £m £m
Costs in relation to business acquisition activity (1.6) -
Trade and other payables 0.2 -
Net cash used in operating activities (1.4) -
Net consideration payable (30.5) -
Cash acquired 0.8 -
Net cash used in investing activities (29.7) -
Cash flows in relation to business acquisition activity (31.1) - -
21 DISCONTINUED OPERATIONS
During the year, a provision against deferred consideration of £0.1 million
(2022: £0.2 million) relating to the sale of the Facilities Management
division in August 2013 was released.
The Income Statement from discontinued operations, included within the
Consolidated Income Statement, is as follows:
2023 2022
£m £m
Operating profit 0.1 0.2
Taxation - -
Profit for the year from discontinued operations 0.1 0.2
Cash flows from discontinued operations, included within the Consolidated
Statement of Cash Flows, are as follows:
2023 2022
£m £m
Net cash generated from operating activities 0.1 0.2
22 CONTINGENT LIABILITIES
The Group operates from a number of sites across the UK and the Republic of
Ireland. Some of the sites have operated as laundry sites for many years and
historic environmental liabilities may exist. Such liabilities are not
expected to give rise to any significant loss.
The Group has granted its Bankers and Trustee of the Pension Scheme (the
'Trustee') security over the assets of the Group. The priority of security
is as follows:
§ first ranking security for £28.0 million to the Trustee ranking pari passu
with up to £155.0 million of bank liabilities; and
§ second ranking security for the balance of any remaining liabilities to the
Trustee ranking pari passu with any remaining bank liabilities.
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 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. In the period until release the purchaser is to make a
payment to the Company of £0.2 million per annum, reduced pro rata as
guarantees are released. Such liabilities are not expected to give rise to
any significant loss.
23 EVENTS AFTER THE REPORTING PERIOD
There were no events occurring after the balance sheet date which should be
disclosed in accordance with IAS 10, 'Events after the reporting period'.
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 twice a
year, or more frequently should new matters arise. Throughout 2023, the
overall risk environment remained largely unchanged from that reported within
the Group's 2022 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 § Pandemic or Other National Crisis
§ Cost Inflation § Health & Safety
§ Failure of Strategy § Compliance and Fraud
§ Recruitment, Retention and Motivation of Employees § Insufficient Processing Capacity
§ Loss of a Processing Facility § Customer Sales and Retention
§ Competition and Disruption § Climate Change and Energy Costs
§ Information Technology Failures and Cyber Security
Full details of the above risks, together with details on how the Board takes
action to mitigate each risk, will be provided in our 2023 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 2023 Annual Report will be made available on the Group's website
(www.jsg.com) on or before 18 March 2024.
27 APPROVAL
The Preliminary Announcement was approved by the Board of Directors on 4 March
2024.
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