Dividend reflecting confidence in the future

The Board reinstated an interim dividend of 0.8 pence per share at the time of announcing interim results.  We are pleased to recommend a final dividend of 1.6 pence per share, taking the full year dividend to 2.4 pence per share (2021: nil). Dividend cover was 3 times, based on Adjusted EPS excluding super-deduction.

Acquisition of Regency Laundry Limited

In line with our stated acquisition strategy, the Group has continued to seek out and acquire businesses which expand our market coverage and are earnings enhancing. On 13 February 2023, we completed the acquisition of the entire issued share capital of Regency Laundry Limited ('Regency') for a cash consideration of £5.75 million on a debt free, cash free basis and subject to an adjustment for normalised working capital.

Regency, which has 87 employees and operates from a 26,000 square foot leasehold processing facility in Corsham, operates in the luxury/bespoke 4 and 5 star hotel market in the South of England and regularly delivers some 200,000 pieces of linen per week to its customers.

This acquisition provides the Group with a presence in the luxury/bespoke sector of the HORECA market and will continue to operate under the Regency brand.  We plan to expand capacity on site and continue to grow its presence in this market.

The unaudited revenue of Regency in the year ending 31 December 2022, as reported in its management accounts, was £6.1 million.

OPERATIONAL REVIEW

Our Businesses

The Group comprises of Textile Rental businesses which trade through a number of very well recognised brands, servicing the UK's Workwear and HORECA (Hotel, Restaurant and Catering) sectors.  The 'Johnsons Workwear' brand predominantly provides workwear rental and laundry services to corporates across all industry sectors.  Within HORECA, 'Stalbridge' and 'London Linen' provide premium linen services to the restaurant, hospitality and corporate events market and Johnsons Hotel Linen, our high-volume linen business, primarily serves the corporate independent and budget hotel market.  Also within HORECA, our Northern Ireland business, Lilliput, additionally serves a number of healthcare customers.  In February 2023 we acquired Regency which will add further to the HORECA business, supplying more luxury/bespoke linen to the luxury market.

The year began with the continuing impact of COVID-19, particularly in our HORECA business.  As volumes were beginning to recover into the spring we, like many UK businesses, experienced cost inflation and volatility, most notably around energy costs.  We have continued to manage these and work with our customers to agree a number of price increases. This is ongoing into 2023.

Attracting new employees is a continuous challenge, and we have completed a strategic review of our current procedures in certain areas. With a more collaborative approach to marketing and recruitment, we have improved the onboarding process with the implementation of new procedures for induction, training and further learning and development opportunities. This will be complemented by the successful Johnsons Academy which will continue to provide a development and succession strategy for our employees. Our learning and development teams are also actively promoting and supporting the business with the recruitment of apprentices in various roles across the business.  Each business has conducted a further employment engagement survey in respect of 2022 and the various results are noted later in this report.

Energy

Energy costs (comprising gas, electricity and diesel) have remained highly volatile throughout the year and continue to be so.  Costs for 2022, at £36.4 million, were significantly higher than the equivalent period in 2019 of £21.6 million and represented 9.4% of revenue (2019: 6.2%).

We have continued our policy of fixing gas and electricity prices and, as at the end of February 2023, we had fixed over 69% of our anticipated electricity usage and 80% of our anticipated gas usage for the first half of 2023 and 58% and 62% for the second half of 2023.  In addition, we have hedged 75% of our anticipated diesel requirement across 2023.

Looking further ahead, we will continue to lock in prices as opportunities allow.  For 2024, we currently have, based on our anticipated usage, 24% gas, 41% electricity and 50% diesel at fixed prices, with reducing amounts into 2025.

Workwear Division

Operating as Johnsons Workwear, we provide workwear rental and laundry services to some 36,000 customers in the UK, ranging from small local businesses to the largest companies covering food related and other industrial sectors.

The total revenue for the Workwear division increased by 4.4% to £134.6 million (2021: £128.9 million).  Organic revenue increased by 3.7%.  Adjusted EBITDA was £46.6 million (2021: £46.3 million) with a margin of 34.6% (2021: 35.9%).  Adjusted operating profit was £21.9 million (2021: £22.5 million) and included a £1.1 million credit from the finalisation of the Exeter insurance claim in respect of additional revenue cost incurred in 2020 and 2021.

The customer service teams have remained focused on maintaining the quality of service and proactively managed to achieve additional service sales along with the renewal of a significant number of existing customers.  We have, however, seen some of our customer base reduce their workwear spend as they seek to reduce their costs.

The business continues to provide excellent levels of service to our existing and new customers which is reflected in our customer retention remaining strong at 94.3%. The annual independent customer satisfaction survey results of 85% remains positive and again reported us as maintaining our position of being the market sector leader in providing a first-class service to our customers. Our industry leading service offering has assisted us in winning new business and regaining a large multi-site engineering account, commencing in April 2023.

The sales team has been restructured and brought in line with the operational regions, encouraging a more collaborative approach in actively engaging with prospective customers.  The teams are gaining momentum with increased activity, sales and more robust pipelines. This is supported by the success of the National Accounts service and sales teams who have renewed significant national account customers for a further 3-year term.  Our in-house call centre continues to provide valued support to our sales team.  27.5% of all new sales won came from new to rental.  

The successful implementation of a new laundry management system provides new functionality and opportunities to introduce new practices and procedures not only to improve our efficiencies but also to enhance the customer experience and improve the working environment for our employees.

We remain committed to employee engagement and welfare programmes and creating an environment that is inclusive to all employees. Following the previous employee engagement survey, a number of initiatives were implemented to improve employee wellbeing including the introduction of awareness programmes along with confidential direct assistance being made available.  A further survey was commissioned in early 2023 showing an overall score of 81%.

In response to rising costs, the operational teams remain focused upon the continuous improvement of our processes and delivering further enhancements to our operational efficiencies. Despite the challenges around operational cost, the business is committed to an ongoing capital investment programme.  Benefitting from advancements in laundry equipment technology, we have successfully installed several automated systems and have identified further opportunities whereby additional systems have been commissioned and will be installed throughout 2023. This is complemented with further investment in folding and finishing equipment along with the continual upgrading of office, canteen and general working environments.  The business has also implemented significant price increases to help mitigate inflationary pressures and this will continue into 2023.

Our new site in Exeter, which was commissioned in September 2021, is performing in line with our expectations and benefits from automated sorting systems which, as previously stated, are in the process of being rolled out to other sites.

Appreciating our environmental impact, the business continues to focus on the reduction of our consumption of natural resources. Several initiatives have been implemented to reduce our water and energy usage with a continuous heat and water recovery unit installed in Lancaster and an energy recovery unit in Perth, with a commitment to purchase more units in 2023.

In conjunction with our suppliers, we are looking at alternative ways to improve and manage our waste streams and have identified several opportunities to reduce our waste to landfill. We are also actively engaged with customers to reduce their requirements for single use plastic packaging, along with sourcing alternative recyclable plastics.  The initial trials are encouraging.   

The introduction of a sustainable and recyclable range of garments was successfully launched across the business in 2022.  Initial sales are encouraging with interest from our customers increasing. Trials are also underway regarding the recycling of our used garments; six sites are actively engaged in a further feasibility study with an expectation of implementation in 2023.

HORECA Division

The total revenue for the HORECA division increased by 76.2% to £251.1 million (2021: £142.5 million).  Volumes have continued to increase throughout the year albeit were impacted significantly in the first quarter due to the Omicron Covid variant.  Organic growth was 70.9% and benefitted from price increases being implemented across the business in order to help offset the high level of cost inflation experienced.

Adjusted EBITDA for the year increased by 140.5% to £63.0 million (2021: £26.2 million) with a margin of 25.1% (2021: 18.4%).  The adjusted EBITDA margin in the second half of the year was 28.2%, compared to 21.1% in the first half.  Adjusted operating profit was £24.1 million (2021: £5.2 million loss).

Hotel, Restaurant and Catering, which includes Johnsons Stalbridge and London Linen, has recovered well after two years of pandemic led disruption.

Service and quality levels returned to our previous high standards, helping the business to maintain high levels of customer retention.  This was evidenced in our excellent annual customer survey result of 86.5%, placing us in the top quartile of the business service sector.  Service and quality were also aided by an easing of the recruitment difficulties during 2022 and a return to a less volatile marketplace for our customers and their linen requirements.

Customer demand and sales opportunities have been strong, leading to some localised capacity challenges.  However, we have moved customers between operating sites to manage this volume and created additional capacity by the investment of a new sortation system and additional ironing lines in Wrexham and Grantham. Upgrades to chemical dosing equipment in a number of our sites have improved quality and delivered savings through bulk deliveries.

In addition, we are progressing plans to expand our capacity in the South East and have signed a new 20-year lease for an additional site. It is anticipated that the site will open in the second half of 2024. The new site will free up capacity at existing production facilities through the relocation of work, moving processing closer to customers. The capital investment is expected to amount to £16.0 million with cash spend incurred over 2023 and 2024.

Further investments have been made in replacement finishing equipment across the estate to increase efficiency, maintain our high quality and reduce energy use. A water recycling plant has successfully been in use returning a significant proportion of our used water in our Shaftesbury location and we are paper banding many products instead of using plastic wrap. Electric vehicles have been deployed for our engineering teams and a selection of our delivery fleet now run on HVO, which is carbon free.

Post-covid, we have been very active in supporting and seeking feedback from our employees.  Accordingly, engagement with our people has shown a significant improvement with our employee engagement survey score increasing to 85% (2021: 79%).

Within Hotel Linen, our ability to predict and efficiently manage customer volumes remained challenging throughout the year, largely due to operational changes within our customer base including the number of linen items included in a room lay-up and the frequency of linen changes, both having reduced when compared to pre-Covid.

Our key focus was to deliver, on time and in full, to our customer base throughout 2022 and consequently employee recruitment and retention was paramount.  Numerous initiatives have been introduced to attract and retain employees including guaranteed hours during low demand weeks, hourly rate increases, flexible working patterns and other financial incentives.  Various benefits have also been introduced to enhance wellbeing, work/life balance and learning and development opportunities, as well as the launch of a new induction process.  We continue to work closely with His Majesty's Prison Service, providing employment for prisoners qualifying for Release on Temporary Licence.

The National Accounts team continue to develop strong relationships with our hotel groups who have recognised the unprecedented cost pressures during price increase discussions.  Successfully building strong relationships and strategic partnerships is reflected in significant growth, both in organic and new sales, with over 23,500 rooms installed in 2022, some at short notice and with exceptional feedback on contract implementation.  8,000 of the installs were in the final quarter of 2022 and a further 2,900 rooms have been installed in the first two months of 2023, bringing the total number of rooms being serviced by Hotel Linen to over 200,000.  We were also pleased to renew the contract with the Belfast group of hospitals for a further seven years.

The recent investment in our largest facility in Bourne successfully met our objectives of improving both efficiency and capacity, as did the investment at our site in Belfast.  The lease of an additional unit on the Belfast site will further improve employee welfare facilities and the packing area and the planned replacement of washing equipment in early 2023 will underpin growth in market share.

Investment has also focused on improving energy and water usage to support sustainability objectives, with 2023 plans including innovative investment in robotic machinery and dynamic production data capture.

Our field-based teams rolled out the new 'Linen Room' during the year, an online customer portal, which gives access to our linen ordering system.  The portal scored a Customer Satisfaction Index of 89.7% in our independent Customer Satisfaction Survey which is very encouraging.  The method for reporting and ordering stock through the portal is easier, complemented with improved customer business reports.  In addition, the introduction and utilisation of our new Customer Service App provides an improved platform to gather customer feedback and identify areas for improvement.  Overall, our Customer Satisfaction Survey increased to 85.2% reflecting the excellent contribution from all our teams.

Strategic relationships with business suppliers continue to develop, as demonstrated by the consistent supply of products and services to us, despite the challenges relating to increased cost and availability of products or components.  This has been of particular note with the supply of vehicles during 2022 where we have taken delivery of 31 commercial vehicles.  Our partnership approach has proved successful when negotiating with suppliers and customers alike.

The employee engagement survey for 2022 demonstrated an improvement in all four key focus areas (wellbeing increasing from 77% to 78%, work patterns from 74% to 79%, work/life balance from 78% to 80%, career development from 75% to 78%) and an overall score of 82%.  A significant amount of engagement initiatives, planned activities and investment in developing our employees has taken place.  Our focus continues in supporting our employees to perform to their best potential in their current roles, as well as develop for the future.

ENVIRONMENTAL & SOCIAL RESPONSIBILITY

The Board, as a whole, has overall responsibility for environmental, social and governance matters and we recognise our duty to stakeholders to operate the business in an ethical and responsible manner.  We remain committed to further developing our environmental and social responsibility agenda, recognising that it plays a major part in leading and influencing all of our people and operations.

In February 2022, we published 'The Johnsons Way' which sets out the Group's targets for 2030 together with our objectives and plans for 2022.  This was followed by the publication of our Inaugural Sustainability Report in August 2022.  Both documents can be found on our website at www.jsg.com.

For the Group to realise the true value of its sustainability contribution, the sustainability programme must be embedded across all Group functions and operations.  To this end we have spent much of 2022 refreshing our strategy and communicating our plans across the Group. Embedding the programme into everyday business is ongoing however, during this period we have made some significant strides forwards to better understanding those impacts and laying robust foundations that will support our Vision 2030 goals.  Further details of our achievements during 2022 and our targets for 2023, ongoing initiatives and actions for the future will be set out within the Group's 2022 Annual Report.

EMPLOYEES

Our employees are key to the ongoing success of our business and 2022 has been another challenging year for each and every one of them. 

The Board would like to thank all of our employees for their support, hard work and significant contribution to the success of the business during the last 12 months.  The teamwork and determination demonstrated in order to deliver a professional and on time service to our customers is a credit to all of them and we thank them for their continued support.

OUTLOOK

The Board remains confident about the growth opportunities available to the Group.  Our scale, expertise and operational excellence mean that we are well placed to capitalise on opportunities as markets continue to recover.

Whilst customer behaviour remains difficult to predict and inflationary pressures continue to persist, we have a resilient business model to help mitigate these challenges.  We also have some protection through the fixing of a proportion of our energy costs.  We continue to secure and implement price increases across our customer base which, along with additional volume already secured which will better utilise our labour resource and improve processing efficiency, will help offset cost inflation.

Through the improving cash flow, we have been able to support our capital investment plans and increase in rental inventory, embark upon a share buyback programme and, in February 2023, complete another acquisition.  There is positive momentum moving into 2023 and we will continue to identify opportunities to strengthen our position in the market as well as continuing to focus on delivering outstanding customer service and investing in both our employees and our laundry facilities.

After considering the current economic environment, including the recent, and possibly further, increases in UK interest rates and the subsequent impact on our cost of borrowing, the Board expects the result for the year to be in line with market expectations.

Peter Egan

Chief Executive Officer

6 March 2023