CHIEF EXECUTIVE'S OPERATING REVIEW (continued)

Statutory operating profit increased to £58.8 million (2024: £54.7 million) whilst statutory profit before taxation, after amortisation of intangible assets (excluding software amortisation) of £7.7 million (2024: £7.2 million) and the exceptional items referred to above, increased to £50.8 million (2024: £47.2 million).

Adjusted diluted earnings per share increased by 19.8% to 12.1 pence (2024: 10.1 pence).

Dividends

An interim dividend of 1.6 pence (2024: 1.3 pence) per share was declared at the time of announcing our interim results.  We are pleased to recommend a final dividend of 3.2 pence per share, taking the full year dividend to 4.8 pence (2024: 4.0 pence) per share.  This year-on-year increase of 20.0% reflects the Board's confidence in the future performance of the Group.  Dividend cover remains at 2.5 times.

Share Buyback Programme

In the period since September 2022, we have returned £90.3 million to Shareholders through share buyback programmes.  In line with our capital allocation policy, the Board will continue to actively review its options on further share buybacks throughout 2026, taking into account the cash generation profile of the Group and the level of headroom available under its committed bank facilities.  Further details are set out within the Financial Review.

OPERATIONAL REVIEW

Our Businesses

The Group provides textile rental and related services throughout the UK and Republic of Ireland.

Within our Hotel, Restaurant and Catering ('HORECA') division, 'Johnsons Hotel Linen', our high-volume linen business, primarily serves group and independent large hotel customers, 'Johnsons Hotel, Restaurant and Catering Linen' provides premium linen services to restaurant, hospitality and corporate event customers whilst 'Johnsons Luxury Linen' provides bespoke linen predominantly to four and five-star luxury hotels.  Also, within HORECA, 'Johnsons Ireland' serves both hospitality and healthcare customers.  Our Workwear division comprises solely of 'Johnsons Workwear', which predominantly provides workwear rental, protective wear and laundry services to UK businesses across a wide range of sectors including food manufacturing and industrial.

The impact of significantly increased labour and premises costs is being felt by some of our end customers, particularly within the hospitality market, making price increases and renewals more challenging.  Whilst the market remains competitive, we remain focused on consistently delivering excellent service that aligns with our pricing levels and investing in our estate to drive continued operational efficiencies.

Energy Cost Management

Energy costs (comprising gas, electricity and fuel) have remained elevated throughout the year and continue to be so.  Costs for 2025 represented 7.4% of revenue, a reduction from 8.8% of revenue in 2024 but significantly higher than in 2019 where the cost was 6.2% of revenue.

For many years, our policy in the UK has been to fix energy prices on a rolling basis, building a position so that the upcoming months are largely fixed.  This provides certainty but also means that costs do not immediately reflect falls, or increases, in spot prices.  We have continued this policy of proactively fixing energy prices and, as at the end of February 2026, we had fixed some 90% of our anticipated electricity usage and some 95% of our anticipated gas usage for the first half of 2026 and approximately 75% and 85%, respectively, for the second half of 2026.  In addition, we have hedged approximately 70% of our anticipated diesel requirement across 2026.

Looking further ahead, we currently have, based on our anticipated usage, approximately 55% electricity and approximately 70% gas at fixed prices for 2027, with reducing amounts into 2028 and 2029, and will continue to lock in prices as opportunities allow.

Labour

Labour remains the biggest cost of our operations.  In the year to 31 December 2025 labour, as a percentage of revenue, increased 140 basis points to 46.0%, significantly higher than the 44.6% in the year to 31 December 2024 and the 43.0% in the year to 31 December 2019.

The higher percentage above is reflective of increases in National Minimum Wage and Pay Related Social Insurance in January 2025 in the Republic of Ireland and increases in the National Living Wage and National Insurance in the UK in April 2025.  The annualised impact of the increase in employer National Insurance contributions in the UK alone is some £6.0 million, which we have mitigated and managed through price increases, operational efficiencies and other measures.  Labour costs, as a percentage of revenue, are expected to remain relatively stable into 2026.

HORECA Division

Revenue within HORECA increased to £389.8 million (2024: £371.2 million) whilst adjusted operating profit increased to £59.8 million (2024: £49.4 million), giving a margin of 15.3% (2024: 13.3%).  This significant increase in profitability reflects, in part, production efficiencies resulting from more predictable volumes and the benefits of capital investment together with lower energy costs.  Adjusted EBITDA for the year increased to £122.9 million (2024: £110.5 million) with an improved margin of 31.5% (2024: 29.8%). 

Johnsons Hotel Linen

Volumes within Johnsons Hotel Linen were in line with our expectations, with new business coming from a combination of successful sales team activity and new build hotels or extensions with existing customers.  We remain easy to do business with and continue to provide solutions to customers' challenges, with excellent on time and in full service levels.  Installations of new business continued to be well organised and efficient, often with very short lead times, and our externally facilitated customer satisfaction survey resulted in a high score of 88%, similar to the prior year.  We received excellent feedback relating to our service team's partnership approach and they continue to build excellent customer relationships.  Testament to our reputation for delivering excellent service levels, in 2025 Johnsons Hotel Linen agreed a five-year contract renewal with one of its largest customers.

As in previous years, capital investment focused on driving operational efficiency and increasing capacity whilst reducing our carbon emissions.  At Edinburgh and Pwllheli, we replaced sorting systems and automatic dryers whilst our Reading, Chester and Cardiff sites benefitted from the installation of new boilers and the replacement of older ironers for newer models.  A number of stand-alone washing machines were also upgraded across the estate and we have continued to invest in our vehicle fleet, resulting in excellent reliability and a reduction in emissions.

As part of continually improving our sustainability credentials, plastic wrapping of clean, delivered product has been removed from our Birmingham, Chester, Clacton and Pwllheli sites.  Instead, linen is now delivered in reusable, washable bags which can also be used for linen storage at customers' premises.  Roll out across the estate will continue in 2026.

Johnsons Hotel, Restaurant and Catering Linen

Against a difficult hospitality market backdrop, the effect of significantly increased business costs has particularly impacted some of the customers served by Johnsons Hotel, Restaurant and Catering Linen, with price increases and renewals becoming more challenging.  In addition, whilst new sales activity has remained broadly consistent with prior periods, market churn, particularly within the independent hotel and restaurant sector, has increased in recent months, resulting in a decline in volumes in some regions.

Whilst the market remains competitive, we are focused on continuing to deliver an excellent level of service to our customers, as reflected in our annual customer survey results where an improved overall score of 89% was achieved, with several sites achieving a world class score of over 90%.

The significant cost increases being experienced across UK businesses are encouraging some of our smaller, independent competitors to review their business strategy and, as a result, we added customer contracts with an annualised revenue of some £4.9 million to the division during 2025.  We anticipate that further, similar, opportunities will continue to arise.

Many of our existing customers located in London and the Southeast region have now been successfully transferred into our new Crawley site, which began processing in March 2025.  This, in addition to new business wins, resulted in peak processing volumes during the year building to some 50% of capacity, in line with our expectations.  The Crawley laundry process is designed to consume significantly less energy than a traditional laundry, provides significant water recycling opportunities, utilises renewable energy sources and undertakes deliveries using vehicles powered by HVO, which provides for a significant reduction in vehicle emissions.

Investment in the wider estate has also continued, with replacement boilers, water recycling systems, ironers and garment finishing equipment having been installed across several of our sites.  All new investments have a pre-requisite to reduce carbon emissions against our 2030 targets and improve production efficiency.

Johnsons Luxury Linen

Johnsons Luxury Linen experienced strong volumes in 2025, aided by both high retention levels and a number of high-profile customer wins.  The sales pipeline is encouraging and supports our growth ambitions in securing additional five-star luxury hotel customers.

The site in Tottenham, acquired in September 2024, has been successfully integrated into the Group, with local management now working collaboratively with colleagues in both Corsham and across the wider Group, sharing knowledge, experience and best practice methodologies.

Both sites have benefitted from strategic investment in plant and equipment.  In particular, the £1.3 million investment in plant and machinery at our Corsham site at the end of 2024, which increased processing capacity there by almost 20%, is now being utilised as the site achieved record volumes and efficiencies in 2025.  Plans for increasing processing capacity are being developed to further expand this part of our business.

Johnsons Ireland

The rollout of our Johnsons Ireland rebranding is now complete, with Johnsons Celtic Linen in the south and Johnsons Belfast in the north supplying customers across the entire island of Ireland.  Our vehicles and sites have been rebranded and we have launched our new website.

In hospitality, volumes were as expected albeit with some regional variations.  Healthcare volumes have continued to rise, with an increase in day procedures performed by hospitals.  Overall, our end markets remain competitive with any customer attrition often due to the customer seeking pricing levels which are not commensurate with the level of service we provide.  We continue to concentrate on our proven track record of providing a high quality and reliable service to our customers, easy and available access to our team and consistent communication.

Similar to the UK, increasing labour costs in the Republic of Ireland remain a challenge following the 6.3% increase in minimum wage and the increase in Pay-Related Social Insurance ('PRSI'), both of which were effective on 1 January 2025.  As part of the overall mitigation plan, we are working to continue improving efficiencies and processes, helped by the capital investment programme across the estate.

The capital investment of £6.3 million in Wexford and Naas, which started in 2024, has been completed. This investment includes the installation of a state-of-the-art sortation system, a high-speed ironer line, a continuous batch washer system, additional drying capacity and a new automated chemical dosing system.  These new pieces of equipment help to optimise washing throughput and energy efficiency and have increased capacity in Wexford by some 20% and in Naas by some 40%.  In addition to installing new processing equipment, we have also upgraded employee welfare facilities and offices.

Workwear Division

Revenue for the Workwear division increased by 2.4% to £145.6 million (2024: £142.2 million).  Adjusted EBITDA was £52.1 million (2024: £49.4 million) with an increased margin of 35.8% (2024: 34.7%).  Adjusted operating profit was £21.0 million (2024: £20.3 million), resulting in an improved margin of 14.4% (2024: 14.3%), reflecting the implementation of price increases throughout the year to offset input cost inflation.

Our sales team had a successful year in acquiring new business.  They have confidence in our ability to deliver excellent service and focus on this when participating in new commercial opportunities and tenders.  Similarly, the service team secured significant contract renewals with multiple key customers, often identifying opportunities for expansion within those accounts.

Customer retention is now 94% (2024: 93%) and trending towards historic levels, validating the strength of our customer relationships, the consistent delivery of our service and our responsiveness to evolving customer needs.  The renewal rate also reflects the effectiveness of our proactive engagement strategy, built around personalised account management and ongoing customer interaction.

The externally facilitated satisfaction survey for existing customers saw us achieve a result of 84%, whilst the new customer satisfaction survey achieved a robust score of almost 86%.  These results reflect our commitment to delivering high quality service, building trusted relationships and continually improving the customer experience.

Capital expenditure in the year included investment in forty new commercial vehicles, laundry processing equipment and boiler systems at several sites, all of which help deliver operational resilience and assist in reducing our carbon footprint.

The relocation of operations from Lancaster to Manchester, and the subsequent closure of the Lancaster site, was successfully completed during the year with no disruption to service delivery.  The cost of the project was £1.4 million and has been charged to exceptional costs.

At the end of June 2025, our small industrial workwear processing unit in Bristol suffered a fire which rendered that part of the site inoperable.  Work continues to be processed at our sites in Exeter and Treforest and, importantly, there has been no disruption to customer service.  Business interruption insurance is in place and we expect to finalise the claim with insurers in 2026 however, a £0.4 million charge has been recognised within exceptional items during 2025.

SUSTAINABILITY

The Board has overall responsibility for environmental and social 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 our people and operations.

In June 2025, we published our fourth Sustainability Report which set out the progress we have made and the targets we have set ourselves. 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 2025 and our targets for 2026, ongoing initiatives and actions for the future will be set out within the Group's 2025 Annual Report.

EMPLOYEES

We place great importance on the contribution that each of our employees make to the success of the Group. Our employees are key in our ability to deliver customer service levels which exceed our customers' expectations. The Board would like to thank them for their support and hard work during 2025.

Ensuring employees achieve their full potential remains a key focus of the Group. Providing a range of training, education, apprenticeship and development programmes for employees allows them to take advantage of career progression opportunities within the Group and helps to build a workforce for the future.

Employee engagement activity remains ongoing, supporting our people and providing safe, clean and enjoyable environments to work in. The scores from our employee engagement surveys were outstanding, reflecting the commitment and enthusiasm of our employees across all of our operating locations.

BOARD CHANGES

As previously announced, Ryan Govender was appointed to the Board as Chief Financial Officer ('CFO') in succession to Yvonne Monaghan, with effect from 1 October 2025.  Yvonne retired from the Board on the same date, having served seventeen years as CFO.  The Board would like to thank Yvonne for her significant input and unwavering support during her time with the Group.

As separately announced today, Lysanne Gray will join the Board as an Independent Non-Executive Director with effect from 1 June 2026 and will succeed Chris Girling as Audit Committee Chair following the announcement of the Group's interim results for the six-month period ended 30 June 2026.  In addition, Nicola Keach, who has served as an Independent Non-Executive Director of the Company since June 2022, will succeed Chris Girling as Senior Independent Director with effect from 1 June 2026.  Chris will continue to serve as an Independent Non-Executive Director until he steps down and retires from the Board on 31 December 2026.

FORTHCOMING INVESTOR ACTIVITIES

We are committed to clearly communicating our strategy and activities to our stakeholders, in order that they receive a balanced and complete view of our performance.  An audio recording of the sell-side analysts' meeting, which will be held today at 09:30, will be made available on the Group's website (www.jsg.com) following the conclusion of the meeting.

OUTLOOK

Our successful admission to the Main Market in August 2025 marks a significant milestone in our growth journey.  The move reflects our confidence in the Group's future, our commitment to delivering long-term value for all stakeholders and positions us well for the next phase of growth.

We have entered 2026 as a strongly invested business with a resilient business model and a proven ability to navigate periods of economic uncertainty.  Whilst the challenges created by the significantly increased cost of labour in both the UK and the Republic of Ireland remain difficult to predict, in part due to the impact on customer behaviour, we remain focused on delivering excellent service which is commensurate with our pricing levels.  Our scale and depth of expertise give us the capability not only to mitigate potential challenges through continued operational efficiencies and disciplined cost management, but also to move decisively when appropriate opportunities arise.

We have continued to fix a proportion of our future energy costs and improve the efficiency of our sites to help offset cost inflation and stabilise our cost base and we are continuing to engage with our customers regarding the pricing of our services as we advance through 2026.  New sales across the business are a focus, particularly in the regions where we have added capacity.

We have a strong balance sheet and a highly cash generative model, so are well placed to capitalise on appropriate opportunities as they arise.  We are continuing to focus on expanding the Group through targeted investment in our existing sites and identifying further earnings enhancing opportunities to deploy capital.  In line with our capital allocation policy, the Board will continue to actively review its options on further share buybacks throughout 2026.

Entering 2026, the regional and sector variations in HORECA volumes experienced in 2025 continued.  Notwithstanding this, and recognising normal seasonality driving stronger trading over the summer months, the Board expects to deliver another year of growth across the Group and we remain on track towards achieving our targeted adjusted operating margin of at least 14.0% in 2026.

Peter Egan

Chief Executive Officer

2 March 2026