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