1 September 2021

AIM:  JSG

Johnson Service Group PLC

('JSG' or 'the Group')

Interim Results for the Six Months ended 30 June 2021

"Improving markets, strong balance sheet and confident of long-term growth."

Operational Performance Through the COVID-19 Crisis

-     At all times our priority has remained the health, safety and wellbeing of our people.

-     Workwear continued to operate throughout the various lockdowns with volumes remaining fairly robust and reaching 98% of normal levels in June 2021.  Customer retention levels were 95% during the period to the end of July.

-     As previously reported, the majority of HORECA sites were mothballed throughout the first half lockdown period with volumes at some 11% of normal in the first quarter.  Volumes climbed rapidly from mid-April to reach over 70% in June and over 80% in August, with some sites in tourist areas back to 2019 levels.

-     All HORECA sites, including the new Leeds site, were operational by May.

-    Coronavirus Job Retention Scheme (CJRS) ceased to be claimed from the end of June 2021 with all employees now returned from furlough.

-     Strong balance sheet and liquidity with committed bank facilities of £175 million.

-     Head of Sustainability appointed; refreshing and resetting our Sustainability Strategy in early 2022.

Financial Performance

-     Total revenue of £99.6 million (June 2020: £114.8 million).

-     Organic revenue down 13.2% compared to H1 2020 and down 43.3% compared to H1 2019.

-    Adjusted EBITDA¹ of £16.9 million (June 2020: £24.9 million) with Adjusted EBITDA¹ margin of 17.0% (June 2020: 21.7%).

-     Adjusted loss before taxation² of £11.2 million (June 2020: £12.6 million).

-     Loss before taxation of £14.0 million (June 2020: £18.6 million).

-     Net debt (excluding IFRS 16 liabilities) at June 2021 of £8.8 million (December 2020: net cash of £6.6 million).

-     Net debt at June 2021 of £46.9 million (December 2020: £33.6 million).

-     No interim dividend declared.

Notes

1    "Adjusted EBITDA" refers to operating loss excluding amortisation of intangible assets (excluding software amortisation) and exceptional items (defined as "Adjusted Operating Loss") plus the depreciation charge for property, plant and equipment, textile rental items and right of use assets plus software amortisation.

2    "Adjusted Loss before Taxation" refers to Adjusted Operating Loss less total finance costs.

Peter Egan, Chief Executive Officer of Johnson Service Group, commented:

"During the first half, we have experienced a consistently robust performance from our Workwear business and a notable return of demand in HORECA, particularly driven by the staycation activity in early summer.  It remains difficult to give guidance for the coming months however, in the absence of increased restrictions, we expect that we will announce results for the year towards the higher end of current market expectations.

With our established customer base and well invested infrastructure, coupled with a strong balance sheet and £175 million of committed bank facilities, we are well placed to drive growth in our performance as we move through the remainder of the year and beyond."

SELL-SIDE ANALYST MEETING

A virtual presentation for sell-side analysts will be held today at 09:30, details of which will be distributed by Camarco.  A copy of the presentation will be available on the Company's website (www.jsg.com) following the meeting.

ENQUIRIES

Note: Throughout this statement 'adjusted operating loss/profit' refers to continuing operating loss/profit before amortisation of intangible assets (excluding software amortisation) and exceptional items.  'Adjusted loss/profit before taxation' refers to adjusted operating loss/profit less total finance cost.  'Adjusted EBITDA' refers to adjusted operating loss/profit plus the depreciation charge for property, plant and equipment, textile rental items and right of use assets plus software amortisation.  'Adjusted EPS' refers to earnings per share calculated based on adjusted loss/profit after taxation.  Underlying Adjusted EPS refers to Adjusted EPS calculated to exclude the impact of the 'super-deduction' capital allowances introduced by HMRC for a limited period.  The Board considers that 'adjusted operating loss/profit', 'adjusted loss/profit before taxation, 'adjusted EBITDA' and 'adjusted EPS', all of which exclude the effects of non-recurring items or non-operating events, provide useful information for Shareholders on underlying trends and performance. 

OPERATIONAL AND FINANCIAL REVIEW

Following very strong performances over recent years the Group has had a difficult period since March 2020 with the onset of the COVID-19 pandemic.  The Group has focused on protecting the business through this unpredictable period and safeguarding our employees and customers whilst strengthening our finances in readiness for a return to more normal trading conditions.

Whilst our Workwear division continued to experience only a modest impact on volumes, the HORECA division was again severely impacted by the lockdown at the start of 2021.  As restrictions eased, volumes began to increase from mid-April and our focus from that point has been to increase the capacity at our sites to process the rapidly changing volumes.

Since March, we have recruited a significant number of employees in order to match production capacity to increasing volumes. Whilst this has presented some short-term challenges in terms of efficiency and productivity, recruitment requirements have now eased as capacity is more closely aligned to the current level of demand.

FINANCIAL REVIEW

Financial Results

Our results for the first half of 2021 reflect the various lockdown restrictions during the period.  Half year revenue was £99.6 million, down from £114.8 million in 2020.  Adjusted EBITDA was £16.9 million (June 2020: £24.9 million) giving a margin of 17.0% (June 2020: 21.7%).  The Group benefited from Coronavirus Job Retention Scheme (CJRS) claims of £9.9 million (June 2020: £16.6 million).  With all employees now returned to the business, no further claims are expected to be made in respect of the second half of the year.

Total finance costs reduced to £1.6 million (June 2020: £3.1 million) in line with the reduction in bank debt.  The period to June 2020 also included a charge of £0.6 million relating to the discontinuance of hedge accounting on interest rate swaps previously designated as cashflow hedges.

The exceptional credit of £2.6 million relates to a further interim settlement from the insurer, relating to capital items, in respect of the 2020 Exeter fire and Treforest flood.  The increased cost of working for Exeter under the temporary arrangements continues to be covered by Business Interruption insurance.  We anticipate a further exceptional credit in the second half of the year as we reach a financial settlement with the insurer in relation to the Exeter fire.

The adjusted loss before taxation was £11.2 million (June 2020: £12.6 million).

Statutory loss before taxation, after amortisation of intangibles (excluding software amortisation) of £5.4 million (June 2020: £5.5 million) and an exceptional credit of £2.6 million (June 2020: exceptional charge of £0.5 million) was £14.0 million (June 2020: £18.6 million).

The tax rate on adjusted loss before taxation, excluding exceptional items and the amortisation of software (excluding software amortisation), was 23.1% (June 2020: 16.7%).  The rate is in line with the expected rate for the full year, excluding the effect of the capital allowances super-deduction which offers 130% first-year relief on qualifying main rate plant and machinery investments until 31 March 2023.

Adjusted diluted loss per share was 1.9 pence (June 2020: 2.8 pence).

Dividend

An interim dividend in respect of 2021 is not being proposed.  The Board is aware of the importance of dividends to Shareholders and will look to reinstate its dividend policy as trading returns to more predictable and normalised levels.

Finances and Capital Structure

Free cash flow in the first half of the year, after capital lease payments, was £5.7 million compared to £38.6 million in the first half of 2020, with 2020 benefiting from a working capital inflow of £16.8 million compared to an outflow of £7.4 million in 2021.  The outflow on working capital was as expected as the business returns to more normal levels of trading.

Total net debt (excluding IFRS 16) at 30 June 2021 was £8.8 million (December 2020: net cash £6.6 million).  After including the impact of IFRS 16, net debt at June 2021 was £46.9 million (December 2020: £33.6 million).

Bank covenants for 2021 are based on minimum EBITDA levels (calculated as adjusted EBITDA excluding right of use asset depreciation) with a return to gearing and interest cover covenants from March 2022.  From March 2022 the agreed gearing covenant is for the ratio of total debt, including IFRS 16 liabilities, to adjusted EBITDA to be not more than three times.  The Group's medium to long-term intention is to operate at gearing levels of between one to two times.

Our Capital Allocation policy remains unchanged and we acknowledge that we are carrying a lower than normal level of debt in the short term, reflecting the continued macro-economic uncertainty.  Our periodic review of capital structure will take into account maintaining a strong balance sheet, continuing capital investment in our plants and in acquisitions, a progressive dividend policy and distributing any surplus cash to Shareholders.

Post-Employment Benefits

The recorded net deficit after tax for all post-employment benefit obligations, calculated in accordance with IAS 19, was £6.4 million at June 2021 compared to £12.1 million at December 2020.  The improvement in the position is due, in part, to a higher discount rate assumed on liabilities offset, to a lesser extent, by higher assumed inflation.  We continue to have a significant portion of scheme assets invested so as to hedge against movements in liabilities, thereby reducing overall scheme volatility.

The triennial valuation of the defined benefit pension scheme as at 30 September 2019 was completed in 2020.  We are tracking ahead of the recovery plan put in place at the previous valuation and we have therefore agreed with the Trustee to continue with the existing deficit recovery payments of £1.9 million per annum until the result of the next review in September 2022.

BUSINESS 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 Hotel, Restaurant and Catering ('HORECA') market sectors.  The 'Johnsons Workwear' brand predominantly provides workwear rental, protective wear and laundry services to corporates across all industry sectors.  'Stalbridge', 'London Linen' and 'South West Laundry' provide premium linen services to the restaurant, hospitality and corporate events market and Johnsons Hotel Linen, our high volume linen business, comprises of Johnsons Hotel Linen by 'Afonwen', by 'PLS' and by 'Fresh'.

The changes made to ensure continuity of operations and to manage the health, safety and welfare of our employees during the early months of the pandemic have continued during 2021.  We continue to review our operations, update risk assessments and implement new processes and procedures where necessary.  We would like to acknowledge the continuing commitment and efforts of our employees and thank them for their support.

We are encouraged by the return of the hospitality market since restrictions began to be lifted in mid-April.  Volumes are continuing to increase as more of the economy returns to normal trading and office workers begin to return.  We anticipate that, in the absence of renewed restrictions, this trend will continue over the coming months.

Workwear Division 

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

The total revenue for the Workwear division was £64.5 million (June 2020: £64.6 million) reflecting the continuing impact of COVID-19 on both our existing customers and winning new business.  Adjusted EBITDA was £23.0 million (June 2020: £24.4 million) with a margin of 35.7% (June 2020: 37.8%).  Adjusted operating profit was £11.2 million (June 2020: £11.6 million) after claiming a CJRS grant of £0.6 million (June 2020: £1.8 million).

The Workwear business continued to operate throughout the pandemic with volumes returning to 98% of pre-Covid levels by June 2021.  The various lockdowns over the last 18 months resulted in our sales force being temporarily furloughed due to decreased demand for changing workwear supplier.  Revised working processes and procedures to protect our employees and business have been maintained despite recent Government announcements.  Our personnel have continued to fully support the business during such unpredictable and challenging times, a reflection of the strong service and family culture throughout our business.

Our Existing Customer Satisfaction Survey achieved the highest results since our surveys began back in 2004, scoring 87.1%, a credit to all our teams during such challenging times.  Customer retention levels also remain high at 95%.

The successful installation of automated processing equipment in Basingstoke during 2020 has resulted in a commitment to similar installations in both Perth and Hinckley.  Work for both will be completed in the second half of 2021.  New washing machines ordered will increase capacity in Letchworth and a new garment finishing tunnel was installed in Hinckley during the second quarter.  Machinery installation is ongoing at our new Exeter plant, with an expected soft opening in late September this year.  The updating of our commercial fleet is continuing along with the rebranding of vehicles less than five years old.  The first double decker trailer and tractor unit for the Workwear division, which will operate between Perth and Aberdeen and reduce the number of road journeys between the two sites, was delivered in July 2021.

The installation of the new workwear laundry management IT platform is on track.  All business departments have constructively contributed towards the functionality of the new system which resulted in a successful conversion at our plant in Hull in June, followed by Lancaster in July.  Our thanks to the dedication of all employees involved in achieving a smooth transition with no negative impact to our customers or operations.  The roll out programme across all remaining sites will continue throughout 2021 and conclude in early 2022.

Eight of our sites have now successfully achieved certification EN 14065, Biocontamination Control System for Laundry Processed Textiles.  This achievement demonstrates to our customers that our laundry service has systems and processes in place to control microbiological contamination in laundered textiles.  The standard compliments others already in place, especially for food and pharmaceutical industries, as well as giving us the ability to process isolation gowns and other healthcare products separately in our sites.  Plans are in place for the majority of our other sites to also become accredited.

HORECA Division

The total revenue for the HORECA division was £35.1 million (June 2020: £50.2 million) with both periods severely affected by various lockdown restrictions.  Adjusted EBITDA was a £3.5 million loss (June 2020: £2.7 million profit).  Adjusted operating loss was £18.2 million (June 2020: £18.8 million) after claiming a reduced CJRS grant of £9.3 million (June 2020: £14.8 million).

Volumes reached over 70% of normal in June 2021 and have continued to increase during July and August to reach over 80%.

A significant proportion of employees were furloughed during the first quarter of the year and many of our sites were mothballed.  As we approached the end of lockdown, we began to return employees from furlough and the business proactively sought to recruit additional resource as quickly as possible, in many cases in advance of processing requirements.  As well as utilising traditional recruitment channels, we used social media and direct mailings to ensure that we reached as many potential employees as possible.  This, combined with our strong reputation local to our sites, has meant we have been successful in recruiting the operational employees we require.  We have successfully recruited over 700 new employees in the period to date.  Recruitment has been more challenging than was anticipated and the competition for labour in the employment market generally has resulted in increased costs of production.

Our Stalbridge, South West Laundry and London Linen brands have seen a strong recovery of volumes since the lifting of hospitality venue restrictions in April and May.  A strategic marketing campaign was timed to coincide with hospitality reopening and this has resulted in a significant number of new sales in the second quarter.  The outlook continues to be positive as the sales pipeline remains strong.

New boiler installations during 2021 in Glasgow and Milborne Port will deliver more efficient steam generation, whilst a complete rewire of our Grantham factory will also reduce utility consumption. New ironing lines being installed in Sturminster Newton and Southall will maintain and improve quality, replacing obsolete and high maintenance machinery.

Within Hotel Linen, 2021 commenced with the ongoing effect of the national lockdown impacting upon volume and customer demand.  Whilst a significant number of hotels remained closed, many remained open for key workers, particularly in the city centre locations as well as a number of customers continuing to act as quarantine hotels.  During the quieter winter months, we continued to maintain service and manage costs and also benefited from the ability to furlough and flexi-furlough employees which helped to reduce costs whilst continuing to protect jobs for those employees who have remained with us.

Our local engineering teams fully utilised the quieter period to complete both essential and planned maintenance schedules and plan for the reopening of the business.

In addition, we continued with the upgrade and installation of our laundry management IT platform with eight of our nine sites now utilising the new system.  The final site will be upgraded later this year once the busy summer season is over.  Following some successful trials, and to further enhance the overall customer experience, we plan to roll out a new web-based customer portal system to an increasing number of customers over the coming months.  The portal will allow customers to benefit from moving to online ordering and invoicing and a greater ability to automate the linen management process.

We also commissioned our new £10 million production facility in Leeds which is a long-term investment to increase capacity across the Yorkshire and North East markets.  Whilst the site will take a period to reach optimum productivity and capacity, we are confident of the strategic importance of the site. We anticipate that we will deliver long-term operational success by balancing volume and demand across our network of nine sites.

With the ending of the national lockdown and some uncertainty over potential business in the coming months, we were encouraged by the resilience of domestic consumer demand with a quicker recovery than we, and our customer base, had anticipated.  Operationally, the significant incremental increases initially caused some service challenges as we attempted to match resource to demand.  These challenges were experienced across the whole laundry sector.  We have, however, since returned our service levels to a more normalised level and we wish to pay tribute to the dedication and hard work of our people who rose to the challenge and worked tirelessly to re-engage with customers and help meet demand.

We continue to benefit from ongoing sales and referrals for new business, especially from new build hotels where the strength of our longstanding reputation for service and quality continue to help us win additional new business from current and new customers.

EMPLOYEES

Our employees are the foundation of our business and the past months have been extremely challenging for each and every one of them.  The Board would like to thank them for their support, hard work and significant contribution to the business through these difficult times.

RESETTING AND REFRESHING OUR SUSTAINABILITY APPROACH

Our Head of Sustainability, who brings with her over 15 years of experience in developing and embedding sustainability strategies, joined the Group in April 2021.

We are currently developing our refreshed sustainability strategy, which we intend to apply across the Group.  The strategy will detail the long-term commitments we are making to address our impacts and will enable us to measure our future performance by developing and setting targets in key priority areas. Whilst we are in the early stages of this process, we are already clear that, to us, the term Sustainability must be used in the widest possible way to encompass all our environmental and social impacts and governance requirements.

Key Priorities and Ongoing Activities

Whilst we are still developing our strategy, we have already identified some of our key priorities which will be reflected within it and these include:

§ transition to a low carbon organisation;

§ a Group wide approach to Equality, Diversity & Inclusion (ED&I);

§ a framework for engaging and managing our supply chain to ensure alignment with our sustainability vision and goals;

§ a model for reducing our waste to landfill which will include policies on end of life textile management opportunities and moving towards elimination of single use plastics; and

§ a continuation of the focus on increasing water and energy recycling.

A selection of some of the ongoing projects and initiatives we have undertaken since our last report include:

§ We continue to trial a wastewater recycling solution at one of our HORECA sites.  This reverse osmosis method utilises hollow fibre ceramic technology to allow for increased repeated use of wash water.  Early results were encouraging and we now await the final stage conclusions.

§ We have reviewed our company car policy and are trialing several electric vehicle options for those who are due to renew their cars this year.  At this stage electric vehicles are a voluntary option however, if their deployment during this trial period proves successful to both the organisation and our colleagues, we anticipate a transitional EV Company Car policy to be implemented over the coming months.

§ We are now part of the Prince's Responsible Business Network having become members of Business in the Community.  This membership illustrates our commitment to learning and developing our sustainability knowledge and practices and our aim of becoming a leader for our industry.

§ An Employee Engagement survey will be undertaken across the Group to allow all of our employees the opportunity to contribute to the business.

OUTLOOK

Whilst HORECA volumes still remain less predictable than in the past, primarily as a result of ongoing uncertainties around travel and other restrictions, since the end of June we have continued to experience increased demand across our sites.  We anticipate that, in the absence of further lockdowns or local restrictions, volumes will continue to improve over the coming months.

Along with many other businesses, we are seeing inflationary pressures on some of our costs.  However, our existing scale and focus on operational excellence means we are well placed to address these challenges proactively without compromising our market share opportunity.

It remains difficult to give guidance for the coming months but, in the absence of increased restrictions, we expect that we will announce results for the year towards the higher end of current market expectations.

We continue to take proactive actions to adapt our operations and we remain confident in our medium and long-term growth prospects.  We also anticipate that there will continue to be further opportunities for consolidation of the market and, given our strong balance sheet, we look forward to taking advantage of opportunities as they arise.

RESPONSIBILITY STATEMENT

The condensed consolidated interim financial statements comply with the Disclosure Guidance and Transparency Rules ('DTR') of the United Kingdom's Financial Conduct Authority in respect of the requirement to produce a half-yearly financial report.  The interim report is the responsibility of, and has been approved by, the Directors.

The Directors confirm that to the best of their knowledge:

§ this financial information has been prepared in accordance with IAS 34, 'Interim Financial Reporting' as adopted by the United Kingdom;

§ this interim management report includes a fair review of the information required by DTR 4.2.7R (indication of important events during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and

§ this interim management report includes a fair review of the information required by DTR 4.2.8R (disclosure of related party transactions and changes therein).

The Directors of Johnson Service Group PLC are listed in the Johnson Service Group PLC Annual Report for 2020 and remain unchanged with the exception of the retirement of Bill Shannon on 5 May 2021.  Details of the Directors are available on the Johnson Service Group PLC website: www.jsg.com

By order of the Board

Peter Egan                                            Yvonne Monaghan

Chief Executive Officer                          Chief Financial Officer

1 September 2021                                  1 September 2021

Forward Looking Statements

Certain statements in these condensed consolidated interim 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 Company'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 interim 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.

Consolidated Income Statement

Consolidated Statement of Comprehensive Income

The notes on pages 15 to 30 form an integral part of these condensed consolidated interim financial statements.

 Consolidated Statement of Changes in Shareholders' Equity

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.  As at 30 June 2021, the EBT held 9,024 shares (June 2020: 8,388 shares; December 2020: 8,388 shares).

Consolidated Balance Sheet

The notes on pages 15 to 30 form an integral part of these condensed consolidated interim financial statements.  The condensed consolidated interim financial statements on pages 11 to 30 were approved by the Board of Directors on 1 September 2021 and signed on its behalf by:

Yvonne Monaghan

Chief Financial Officer

Consolidated Statement of Cash Flows

The notes on pages 15 to 30 form an integral part of these condensed consolidated interim financial statements.