TIDMJSG

RNS Number : 7933S

Johnson Service Group PLC

19 March 2021

19 March 2021

AIM: JSG

Johnson Service Group PLC

('JSG' or 'the Group')

Preliminary Results for the Year Ended 31 December 2020

"Strong balance sheet and confidence for the longer term "

IMPACT AND MANAGEMENT OF BUSINESS THROUGH COVID-19 CRISIS

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

-- Workwear continued to operate and service customers throughout the various lockdowns and Tier restrictions. A 12% volume reduction in April 2020 steadily improved to a 6% reduction in August and reached pre-COVID volumes in October. Customer retention levels were 94% for the year.

-- HORECA sites were mothballed where necessary or production and resourcing curtailed to match customer requirements as linen volumes fluctuated dramatically.

-- Coronavirus Job Retention Scheme (CJRS) utilised to enable continued employment where practicable and ensuring we have sufficient resource to respond to demand as volumes return.

-- Strengthened balance sheet and liquidity with increased bank facilities of GBP175 million and GBP82.7 million equity placing in June 2020.

-- HORECA plants primed to ramp up in response to customer demand as lockdown restrictions ease in the coming months.

FINANCIAL PERFORMANCE

-- Total revenue of GBP229.8 million (2019: GBP350.6 million).

-- Adjusted EBITDA(1) of GBP53.6 million (2019: GBP119.0 million) with Adjusted EBITDA(1) margin of 23.3% (2019: 33.9%).

-- Adjusted Loss before Taxation(2) of GBP17.0 million (2019: Adjusted Profit before Taxation GBP48.2 million).

-- Loss before Taxation of GBP32.3 million (December 2019: Profit before Taxation GBP38.1 million).

-- Net cash excluding IFRS 16 liabilities at December 2020 of GBP6.6 million (December 2019: net debt GBP87.7 million).

-- Net debt at December 2020 of GBP33.6 million (December 2019: GBP127.7 million).

-- As previously guided, no dividend declared in respect of 2020.

Notes

1 Adjusted EBITDA refers to operating (loss)/profit before amortisation of intangible assets (excluding software amortisation) and exceptional items (defined as 'Adjusted Operating (Loss)/Profit') 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 or Adjusted Profit before Taxation refers to Adjusted Operating (Loss)/Profit less total finance costs.

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

"As anticipated, our 2020 results reflect the dramatic impact that COVID-19 has had on the Group, particularly within our HORECA division. However, the decisive actions taken have protected the future of the business, by shoring up the Group's balance sheet whilst managing our laundry operations to ensure flexible quality service for our customers. We continue to take pro-active actions to adapt our operations to ensure the Group can thrive and have a strong platform from which we can scale up operations as higher levels of demand return.

"We would like to acknowledge the magnificent efforts of our employees and thank them for their continued support through these most unusual and challenging times.

"We will continue our strategy to invest in our plants in order to maintain our position as a well invested operator, delivering outstanding levels of service to our customers. This, combined with our existing scale, ability to flex costs and focus on operational excellence, makes us confident that we will be able to take advantage of growth opportunities as they arise and to increase returns to Shareholders over time."

SELL-SIDE ANALYSTS' MEETING

A virtual presentation for sell-side analysts will be held today at 9.30am, 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

 
 
   Johnson Service Group PLC 
 Peter Egan, CEO 
 Yvonne Monaghan, CFO 
 Tel: 020 3757 4992 (on the day) 
 Tel: 01928 704 600 (thereafter) 
 
 Investec Investment Banking (NOMAD)   Camarco (Financial PR) 
 David Flin                            Ginny Pulbrook 
 Carlton Nelson                        Oliver Head 
 Virginia Bull 
 Tel: 020 7597 5970                    Tel: 020 3757 4992 
 

Chief Executive's Operating Review

BASIS OF PREPARATION

Throughout this statement, and consistent with prior years, underlying and other alternative performance measures are used to describe the Group's performance. These are not recognised under International Financial Reporting Standards. The Board manages and assesses the performance of the Group on these measures and believes they are more representative of ongoing trading, facilitate meaningful year on year comparisons, and hence provide more useful information to Shareholders. Underlying and other alternative performance measures, which include adjusted operating (loss)/profit, adjusted (loss)/profit before taxation, adjusted EBITDA and adjusted EPS are defined within the Financial Review.

TRADING PERFORMANCE

Revenue

As anticipated, our 2020 results reflect the dramatic impact that COVID-19 has had on the Group, particularly within our HORECA division. Following a strong start to the year, with organic revenue in the first two months pre-pandemic up 5.6%, total revenue for the year to 31 December 2020 reduced to GBP229.8 million (2019: GBP350.6 million).

Operating Result

Adjusted EBITDA was GBP53.6 million (2019: GBP119.0 million) giving a margin of 23.3% (2019: 33.9%). As expected, we saw this improve from the 21.7% achieved in the first half of the year. Adjusted operating loss was GBP12.1 million (2019: GBP52.8 million profit).

Costs and Cash Flow

A number of factors have affected the results for 2020, with the management team implementing a series of mitigating actions to protect the business:

-- The Group continues to utilise the CJRS and this amounted to GBP28.2 million in the year, of which GBP2.9 million was in respect of the Workwear division and GBP25.3 million in respect of the HORECA division. GBP26.5 million was received in cash during the year. Our current expectations are that we will continue to utilise the CJRS over the coming weeks whilst volumes begin to return.

-- The Board accepted a temporary salary reduction of 20% for the period from 1 April 2020 to 31 October 2020 and senior management accepted the same reduction from 1 April 2020 to 31 August 2020. Other employees who continued to work in administrative and support roles accepted a 10% reduction in the period 1 April 2020 to 30 June 2020. The total cost saving amounted to GBP0.4 million.

-- Recognition of a GBP0.3 million charge relating to a partial discontinuation of hedge accounting in respect of diesel hedging to reflect lower forecast diesel usage for periods after 31 December 2020.

-- Restricting non-essential capital spend and delaying the commissioning of the new Leeds plant.

-- The Group's cash flow benefited from the deferral of VAT (GBP10.6 million deferred from the first half of 2020 to monthly payments during the year to December 2021).

Exceptional Items

Exceptional items were GBP4.3 million reflecting the impact of the Exeter and Treforest insurance claims from early 2020, the closure of the Newmarket Workwear site in December and the cost of COVID-19 redundancies.

Earnings per Share and Dividend

The adjusted loss per share was 3.4 pence (2019: adjusted earnings per share 10.5 pence).

As previously indicated, and in order to conserve cash resources in response to the COVID-19 pandemic, it is not proposed to declare a dividend in respect of 2020. The Board is aware of the importance of dividends to its Shareholders and will look to reinstate its dividend policy as trading returns to more normalised levels.

Liquidity

Total net cash (excluding IFRS 16 liabilities) at the end of the year was GBP6.6 million (December 2019: net debt GBP87.7 million) reflecting the net placing proceeds of GBP82.7 million and the actions taken by the Group during the year to conserve cash. Free cash flow in the year was GBP65.8 million compared to GBP106.8 million in 2019. Including IFRS 16 liabilities, net debt at December 2020 was GBP33.6 million (2019: GBP127.7 million).

The Group remains well funded with access to a committed revolving credit facility of GBP175.0 million, of which GBP40.0 million matures in May 2022 and GBP135.0 million matures in August 2023. This facility is considerably in excess of our anticipated level of borrowings.

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. Currently the 'Johnsons Workwear' brand predominantly provides workwear rental and laundry services to corporates across all industry sectors and, within HORECA, 'Stalbridge', 'South West' and 'London Linen' provide premium linen services to the restaurant, hospitality and corporate events market and Johnsons Hotel Linen, our high volume linen business, comprises Johnsons Hotel Linen by 'Afonwen', by 'PLS' and by 'Fresh'.

As previously indicated, the rollout of the new Group wide corporate brand, which links together the various local brands and extends national brand recognition, has continued throughout 2020, albeit at a slower pace due to COVID-19. This is expected to pick up pace in 2021 as operations return to more normal levels. The associated modest cost will not have a material impact on the reported earnings or cash flow of the Group.

COVID-19 has presented many operational challenges during 2020 and we are extremely proud of how the business has responded and humbled by the commitment and dedication our people are showing, day in day out. The family culture of our business has shone through and reinforced our already strong ethos of teamwork and determination to provide an excellent service to our customers. Our response to the crisis was a testament to the strength of our culture and the resilience of our employees. We acted swiftly and responsibly to ensure that we protected the interests of all our stakeholders.

As previously stated, 2020 saw a strong start to the year with organic revenue in the first two months up 5.6%. Then, in March, over the course of a fortnight we saw the containment measures to control the spread of COVID-19 close a significant proportion of our business. In the face of unprecedented volatility, the health and safety of our employees and customers has been, and remains, our absolute priority.

A number of initiatives launched at the beginning of the pandemic have continued throughout 2020 and into 2021 to manage the health, safety and welfare of our employees. We have implemented and, in many cases, exceeded Government guidelines through the supply of protective face shields and reusable washable masks, increased cleaning routines, the installation of protective screens and space markers and staggering break times to ensure social distancing is possible. Updating risk assessments is an ongoing process. We have continued flexible working for our employees who are able to work effectively from home. We would like to acknowledge the magnificent efforts of our employees and thank them for their continued support through these most unusual and challenging times. We also recognise the impact the current climate of uncertainty has had on mental health and wellbeing for many colleagues and, in response, have offered a free confidential helpline for those employees who felt the need to reach out for additional support.

As a significant proportion of our employees continue to be moved on and off furlough, there is an ongoing process in place to remind them of the preventative measures that we have put in place to ensure their safety. Where possible, remote working has been enabled through the enhancement of virtual tools which also enable us to ensure that we communicate effectively with customers and our employees.

The Group started 2020 with 6,100 employees and with a record of growth in both Divisions over recent years. The effect of COVID-19 on our business in 2020 has been significant, particularly in HORECA, and as announced in November, we have ended the year with 4,540 employees through a mixture of natural churn and redundancies. At the end of February 2021, 2,050 of these employees remain on full or part furlough as we await the recovery in our markets.

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 was GBP129.5 million (2019: GBP135.3 million) reflecting the impact of COVID-19 from mid-March. Adjusted EBITDA was GBP48.7 million (2019: GBP49.2 million) with a margin of 37.6% (2019: 36.4%). Adjusted operating profit was GBP23.3 million (2019: GBP24.4 million).

The Workwear business has continued to operate throughout the pandemic with garment volumes slowly returning to pre-COVID levels in October, from a low of 88% of normal volumes in April 2020. There was a more limited impact from the second lockdown in November, resulting in a small reduction of garment volumes processed. This was repeated in the first two months of 2021 as more customers have remained open and sought to continue to trade through lockdown. Many of our customers, such as the food manufacturing sector, have relied on our ability to provide continuous and consistent service during these unprecedented times.

The additional unit in Basingstoke, which increases site processing capacity by 40% and utilises state of the art automation, was commissioned in September after a delay due to COVID-19 and is now meeting our expectations.

Rebranding of vehicles less than five years old continued throughout 2020 and the plan to fit all vehicles over 3.5 tonnes with tracking devices and cameras will be completed by the end of the first quarter of 2021.

Our field-based sales and service teams have continued to use online communication tools for maintaining contact with both new and existing customers. Customer retention levels remain high at 94%. Despite the impact of COVID-19, our service teams have performed well and continue to achieve organic growth within existing customers. Our 'Existing Customer Satisfaction Survey' for 2020 maintained high levels at 86%, which is in the upper quartile of businesses.

Our sales team, which concentrates on winning new business, was furloughed for part of the year as potential new customers were themselves working from home. Despite this, and with the aid of our call centre, we continued to win new accounts, and of those won, 33.5% were new to rental (2019: 17.6%).

A brand-new building has been secured in Exeter replacing the site lost to fire in early 2020 and is expected to be operational towards the end of 2021. In the meantime, the temporary Exeter depot continues to perform well with garment processing being serviced from nearby sites. The Treforest plant, which was damaged by flooding in February 2020, is now fully refurbished with new machinery installed. We are working closely with our insurers in order to reach a final financial settlement on both claims. The successful management of these two incidents demonstrates the integrity of our business continuity plans, particularly as there was minimal impact to our customers as a result of them being serviced from nearby sites. Our employees at Exeter and Treforest, together with those at supporting sites, are commended on their support of the business during these challenging times.

Five of our sites, being Lancaster, Leeds, Basingstoke, Perth and Birmingham have 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 of processing isolation gowns and other healthcare products separately in our plants. By mid-2021, the majority of our plants will have achieved this standard.

Following our Employee Engagement Survey in 2019, various initiatives have continued to be launched in line with the key areas identified. Active listening and communication, continued investment in learning and development and promotion of health and well-being together with the launch of "workwear heroes" were areas of focus. Many of our employees have undertaken various types of voluntary work supporting the NHS, local charities and communities and we are extremely proud of them all.

The number of projects managed during 2020 was unprecedented, with challenges due to a fire, a flood and a pandemic. In addition, we have progressed the replacement of our textile rental management system and payroll system, completed large capital projects, implemented the results of the employee engagement survey and commenced a logistics review, to name but a few. We look forward to completing these projects in the coming months.

HORECA Division

The total revenue for the HORECA division was GBP100.3 million (2019: GBP215.3 million), the reduction reflecting the closure of a significant number of our sites through the various lockdowns. Adjusted EBITDA was GBP8.7 million (2019: GBP74.5 million) with a margin of 8.7% (2019: 34.6%). Adjusted operating loss was GBP31.5 million (2019: GBP33.1 million profit).

Once the impact of COVID-19 began to be felt, we reacted quickly in order to introduce enhanced health and safety protocols and Personal Protective Equipment (PPE). We also adjusted production volumes, reduced costs and aligned, as quickly as we could, our operations to the challenging environment which was experiencing a dramatic decline in volume and revenue. We have maintained our ability to be agile in restoring processing capacity quickly and efficiently as our volumes recover.

Our hotel, restaurant and catering business, which includes Johnsons Stalbridge, London Linen and South West Laundry, experienced strong new sales activity during the first quarter, with high levels of customer retention. Some major capital projects to support growth and capacity were completed or were underway.

A new and more efficient continuous batch washer, dryers and ironing line were installed in our Milborne Port site to replace obsolete and high maintenance machinery, and a new ironer line and towel folding equipment were installed in Shaftesbury to support capacity growth across our three Dorset locations. At Grantham, we expanded the footprint of the site in order to handle the expected future growth of the business.

The impact of COVID-19 saw volumes decrease to a low of 3% of normal demand during some weeks of the first lockdown from March to June. As a result, operations ceased completely in most locations, although some sites continued to support the Ministry of Defence, Ministry of Justice and similar government agency locations. After the re-opening of hospitality in early July there was significant volatility in volumes across our estate, which reflected holiday locations and the "eat out to help out" scheme. However, by the end of the third quarter, volumes had steadied at near 55% of normal. Since the beginning of October, the introduction of local lockdown measures at various levels has meant volumes have reduced substantially again, although to levels slightly ahead of those in the first lockdown. Three factory locations, in Southall, Milborne Port and Cornwall, are presently mothballed pending a recovery of volumes in 2021, with the remaining sites operating on significantly reduced hours. We will continue to utilise the Government's furlough scheme to match employee resources to customer demand.

We are pleased to be able to support some local healthcare locations with a free scrub suit processing service to support their effort in dealing with the pandemic. We have applied flexibility in supporting our hospitality industry customers through stock management and reduced charging for items on rental. During the final quarter of 2020, we renewed or extended several long-term contracts with existing large group customers.

Non-essential capital expenditure was halted after the first quarter of 2020. However, as part of our ongoing programme of reducing our impact on the environment, we have installed a Carbon Trust sponsored prototype water recycling plant at our Shaftesbury site. The installation is expected to be tested and commissioned in early 2021 and we look forward to working with the developer to assess the benefits.

Johnsons Hotel Linen also had a strong start to 2020, with volumes and revenue slightly ahead of forecast due to continued growth in customers and a generally favourable hospitality outlook prior to the impact of COVID-19.

The Johnsons Hotel Linen business, which primarily serves the corporate 4 star and budget hotel marketplace, was inevitably the most materially affected of our businesses. Many of our customers experienced a significant and sudden drop in bookings, together with high cancellation rates, as a result of the introduction of Government restrictions on travel. In addition, many of our customers faced significant cancellations of conferences and sporting events during the majority of the subsequent lockdown periods.

Throughout the year, processing volumes were adjusted, and some sites were consolidated and mothballed, with volume moved around the country to reduce operating costs and align volumes and revenue as efficiently as possible. Through much of the first lockdown, the business operated with a core of just 60 members of the team, the vast majority of whom agreed voluntary salary sacrifices for a minimum of three months. Capital expenditure was largely frozen for all but essential spend.

Substantial efforts in introducing COVID secure policies enabled the business to continue to operate successfully and we were delighted to support a number of key customers who chose to remain open in order to help support UK Government efforts in accommodating key workers, including NHS staff, in hotels close to hospital sites. Several other hotels were also serviced and supported to help accommodate homeless people as part of the Government's "Everyone In" package, to avoid people sleeping rough amid the pandemic.

During the first lockdown in the second quarter of 2020, the business continued to successfully plan for the future, whilst benefiting from the Government's furlough scheme, enabling it to reduce costs whilst maintaining employees for as long as possible. During this time, senior and middle management used their time to good effect, ensuring the successful implementation of a new IT platform across several sites, on time and to budget. Considerable effort, creative new ways of working and innovative new plans were drawn up to enable a key project such as this to be completed across a total of five sites during the year and our thanks go to all those involved for seeing through and implementing the project so successfully.

In addition, we successfully completed the construction and installation of our new GBP10 million production facility in Leeds, but strategically took the decision to delay final commissioning until demand in the hospitality market has improved, later this year.

As the UK came out of the first lockdown, volumes recovered quickly, and to over 50% by September, driven largely by strong demand for staycations and recovery in domestic business travel. Hotels around airports, whilst evidencing some recovery, remained far below their normal demand levels. Particularly strong demand was seen around the traditionally busier coastal areas, in particular the South Coast, Wales and East Anglia. The Scottish market, whilst improving, faced a weaker level of demand, impacted significantly by the cancellation of events such as the Edinburgh Festival. The cancellation of many other cultural and sporting events also impacted the business across the UK throughout the remainder of the year.

In the autumn and early winter, volumes continued to fluctuate based on an evolving series of changes brought about by the various local lockdowns and policies implemented by the UK, Scottish and Welsh Governments. Clearly, these policy changes have impacted on our local management teams and resulted in a considerable challenge at a local operational level to align logistics with evolving volumes at different sites. It is great testament to the agility and resilience of our business that, throughout this period, no material service issues emerged, and a significant number of customers have recognised the professional manner in which these challenges have been faced.

During 2020 we successfully renewed our contract with the Group's largest customer, Premier Inn. Under the new contract we will add a significant number of new sites, over 100 additional hotels, totalling over 12,000 rooms across the UK, with a significant cluster around our new Leeds production facility. In total, once fully installed, we will supply approximately 50% of the Premier Inn estate.

Throughout the year we have continued to support the local communities we serve. Several employees were engaged in a range of initiatives including helping to recruit those leaving prison into the workplace to give people a second chance. The pandemic has, unfortunately, meant that this programme has been suspended for the time being. We also helped support several local food banks and made donations to a number of local schools as part of our engagement with the local communities in which we operate.

In addition, during the year, working with our professional trade body, the Textile Services Association ('TSA') we participated in a trial to assess the impact of how we can recycle end of life textiles, to enable us to promote the benefit of a genuine circular economy.

Furthermore, we believe we became the first textile rental company in the world to have its application to join the Better Cotton Initiative ('BCI'), a global organisation based in Geneva, approved. BCI is internationally recognised as a not-for-profit organisation that exists to make global cotton production better for the people who produce it, better for the environment it grows in and better for the sector's future. BCI Membership has historically been for major global retailing brands and textile manufacturers and we are delighted, as part of our sustainability efforts, to be able to join, support and promote BCI membership to help encourage sustainable purchasing of textiles through our supply chain and throughout our industry.

Ongoing Impact of COVID-19

During the first two months of 2021 we have continued to see the impact of the various lockdowns and restrictions on our business, particularly in HORECA. Volumes during January and February in HORECA were some 9% of normal and many of our employees continue to be furloughed. We have yet to open our new HORECA site in Leeds and we currently have three other HORECA sites mothballed whilst the second units at Bourne and Reading are also temporarily closed. It is our intention to open the Leeds site and return the remainder of the other plants to production as demand increases. We are working closely with our HORECA customers to plan for the upturn as restrictions are lifted over the coming months. In Workwear, volumes are 96% of normal and all sites continue to operate and service our customers.

System Development

Work has continued on the installation of a new laundry management system with six of our Hotel Linen plants now live. The remaining Hotel Linen plants will be rolled out by the end of the year. A new laundry management system for Workwear is also expected to be rolled out in 2021, with the first installation expected in the second quarter.

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 are committed to developing our environmental and social responsibility agenda, recognising that it can play a major part in leading and influencing all of our people and operations.

Our corporate culture defines who we are, what we stand for and how we do business and it is integral to the success of the Group. Our strong reputation has been built on the solid foundation of an ethical culture, underpinned by a well-defined and effective system of governance. We are committed to equal opportunities and an entirely non-discriminatory working environment where everyone is treated with dignity and respect and we strive to create an inspiring working environment where everyone is engaged and motivated.

The Board has always taken its environmental impact very seriously and is taking steps to improve the performance further. For many years, we have continued to invest in energy efficient capital equipment and update our operational procedures in order to reduce our energy, fuel, water and detergent usage and, in turn, our wastage. This ongoing investment has, unquestionably, reduced our environmental impact over the years whilst at the same time improved our productivity. Our approach is to work through education, communication and direct action.

Further details of our ongoing initiatives, together with actions for the future, will be set out within the Group's 2020 Annual Report and Accounts.

EMPLOYEES

Our employees are the foundation of our business and 2020 has been a challenging year for each and every one of them. The impact of COVID-19 has tested the strength, resilience and adaptability of our teams more than ever and they have worked tirelessly to ensure that we continue to provide market leading customer service. The Board would like to thank them for their support, hard work and significant contribution to the business through these difficult times.

BOARD CHANGES

As announced on 5 January 2021, Bill Shannon is to retire from the Board at the conclusion of the AGM to be held in May 2021. The Board would like to thank Bill for his significant input and counsel during his years as both a Non-Executive Director and latterly as Chairman.

Jock Lennox was appointed to the Board on 5 January 2021 as an Independent Non-Executive Director and Chairman Designate. The intention is that Jock will step up to the role of Chairman following Bill's retirement in May.

OUTLOOK

Whilst the COVID-19 pandemic has had a significant impact on the Group in the short term, we remain confident in our medium and long-term growth prospects. The road maps announced in various parts of the UK illustrate how lockdowns and restrictions will potentially begin to be lifted over the coming months as further significant progress is being made with the ongoing vaccination process.

We continue to take proactive actions to adapt our operations to ensure the Group can thrive and is well placed for the recovery. We continue to execute at pace and are confident in our ability to be agile and respond to increasing volumes from our customers as our end market segments begin to re-open and recover.

We will continue our strategy to invest in our plants in order to maintain our position as a well invested operator, delivering outstanding levels of service to our customers. This, combined with our existing scale, ability to flex costs and focus on operational excellence, makes us confident that we will be able to take advantage of growth opportunities as they arise and to increase returns to shareholders over time.

Peter Egan

Chief Executive Officer

19 March 2021

Financial Review

FINANCIAL RESULTS

T otal revenue for the year to 31 December 2020 reduced to GBP229.8 million (2019: GBP350.6 million).

Adjusted EBITDA was GBP53.6 million (2019: GBP119.0 million) giving a margin of 23.3% (2019: 33.9%) and, in-line with management expectations, improving from the 21.7% margin achieved in the first half of 2020. The result included the benefit of Government support under the CJRS amounting to GBP28.2 million in the year.

The analysis of the Group results across the segments show the impact of the pandemic on the adjusted EBITDA of our different divisions:

 
                               2020                              2019 
                 --------------------------------  -------------------------------- 
                              Adjusted                          Adjusted 
                    Revenue     EBITDA     Margin     Revenue     EBITDA     Margin 
                       GBPm       GBPm          %        GBPm       GBPm          % 
 Workwear             129.5       48.7      37.6%       135.3       49.2      36.4% 
 HORECA               100.3        8.7       8.7%       215.3       74.5      34.6% 
 Central Costs            -      (3.8)          -           -      (4.7)          - 
---------------  ----------  ---------  ---------  ----------  ---------  --------- 
 Group                229.8       53.6      23.3%       350.6      119.0      33.9% 
---------------  ----------  ---------  ---------  ----------  ---------  --------- 
 

The statutory operating loss was GBP27.4 million (2019: GBP42.7 million profit) whilst adjusted operating loss was GBP12.1 million (2019: GBP52.8 million profit).

The total finance cost was GBP4.9 million (2019: GBP4.6 million) and included GBP3.1 million (2019: GBP2.7 million) of bank interest and hedging costs, GBP1.7 million (2019: GBP1.8 million) of interest in respect of IFRS 16 liabilities and GBP0.1 million (2019: GBP0.1 million) in respect of notional interest on pension liabilities.

Exceptional items were GBP4.3 million and comprise the cost of COVID-19 related redundancies due to the re-alignment of our workforce (GBP4.7 million), the impairment of plant and equipment destroyed in the Exeter fire and Treforest flood (GBP1.0 million), the credit arising on the recognition of GBP2.5 million of insurance proceeds relating to interim payments for capital items and the closure costs of the Workwear site in Newmarket in December 2020 (GBP1.1 million). Further insurance receipts will be received in 2021 as the insurance claims are finalised with the insurer, and in cash flow terms will largely fund the planned capital spend on Exeter.

Adjusted loss before taxation was GBP17.0 million (2019: GBP48.2 million profit). Statutory loss before taxation, after amortisation of intangible assets (excluding software amortisation) of GBP11.0 million (2019: GBP10.1 million) and exceptional items of GBP4.3 million (2019: GBPnil), was GBP32.3 million (2019: GBP38.1 million profit).

Adjusted diluted loss per share was 3.4 pence (2019: adjusted diluted earnings per share 10.5 pence).

FINANCING

Total net cash (excluding IFRS 16 liabilities) at the end of the year was GBP6.6 million (December 2019: net debt GBP87.7 million) reflecting the net placing proceeds of GBP82.7 million and the actions taken by the Group during the year to conserve cash. Including IFRS 16 liabilities, net debt at December 2020 was GBP33.6 million (December 2019: GBP127.7 million).

The Group remains well funded with access to a committed revolving credit facility of GBP175.0 million, of which GBP40.0 million matures in May 2022 and GBP135.0 million matures in August 2023. This facility is considerably in excess of our anticipated level of borrowings.

Bank covenants, tested quarterly, comprise a maximum level of net debt (excluding IFRS 16 liabilities) of GBP155.0 million to September 2021 and GBP145.0 million at 31 December 2021. A minimum EBITDA test also applies which gives headroom against our current scenario planning and where EBITDA is defined as Adjusted EBITDA less right of use asset depreciation. The headroom on this EBITDA test was GBP17.3 million for the quarter ended 31 December 2020.

Subsequent to the year end, we reached agreement with our banks in respect of revised quarterly covenant tests from 31 March 2022, largely to accommodate the changes in reporting following the adoption of IFRS 16. The amended covenants will return to more normal gearing and interest cover tests. Gearing, for bank purposes, will be calculated as Adjusted EBITDA compared to total debt, including IFRS 16 liabilities, and the agreed covenant is for the ratio to be not more than three times. Interest cover compares Adjusted EBIT to total interest cost with a minimum covenant ratio of three times at March 2022 and rising to four times thereafter. Again, these revised covenants provide headroom on our current scenario planning.

Interest payable on bank borrowings is based upon LIBOR plus a margin of 2% from July 2020 to March 2022. Thereafter, the margin will be linked to our gearing covenant and will range from 1.25% to 2.25%.

During 2019 we had mitigated our exposure to future increases in LIBOR rates through the use of interest rate hedging, details of which are given in note 14 of this statement. Given the repayment of bank borrowings during the year these hedges no longer fully qualified as effective hedges and accordingly an additional interest cost of GBP0.6 million was recognised within bank interest in the Consolidated Income Statement in relation to these hedges.

TAXATION

The tax rate on adjusted (loss) / profit before taxation, excluding exceptional items and the amortisation of intangible assets (excluding software amortisation), was 18.5% (2019: 18.8%) and in line with the effective tax rate of 19.0% (2019: 19.0%). The net tax paid during the year was GBP3.4 million (2019: GBP9.3 million) with the amount benefiting from a loss relief claim of GBP0.9 million in respect of 2020.

DIVID

As previously indicated, and in order to conserve cash resources in response to the COVID-19 pandemic, it is not proposed to declare a dividend in respect of 2020. The Board is aware of the importance of dividends to its Shareholders and will look to reinstate its dividend policy as trading returns to more normalised levels.

CASH FLOW

Free cash flow in the year was GBP65.8 million compared to GBP106.8 million in 2019. Of this, we invested GBP21.4 million (2019: GBP20.0 million) in the purchase of property, plant and equipment and software, largely on projects that had already been committed before the impact of the pandemic was known. Offsetting this spend was GBP2.5 million received as part of the insurance claim in respect of capital items. The required investment into textile rental items was much reduced during 2020.

The Group raised net proceeds of GBP82.7 million from a placing of 73.9 million shares, representing 19.99% of issued share capital, in June 2020 in order to strengthen the Balance Sheet and to ensure we had the ability to quickly act on non-organic opportunities to grow the business in the aftermath of the pandemic.

Free cash flow in 2020 benefited from a net working capital inflow of GBP24.4 million (2019: GBP2.3 million), largely reflective of a reduction in trade receivables and the deferral of GBP10.6 million of VAT, originally due in April 2020, which we plan to pay to HMRC during the year to December 2021. We anticipate this inflow will reverse during 2021, the full extent to which being largely dependent upon volumes, particularly within HORECA, returning.

Action has been taken to preserve cash as our revenue, particularly in our HORECA business, has been severely impacted. We have utilised Government support through both the CJRS and the VAT deferment scheme. The amount claimed in the year under CJRS was GBP28.2 million of which GBP26.5 million was received in cash during the year.

INVESTMENT IN TEXTILE RENTAL ITEMS

Spend on textile rental items amounted to GBP28.1 million (2019: GBP48.2 million). The significant reduction reflects the impact of the pandemic on volumes processed and therefore required in circulating items. We continue to work with our chosen workwear and linen suppliers to ensure both are available on a timely basis and that sufficient stocks are available in the UK to support the upturn in demand when it comes. We would expect the spend on textile rental items to be higher in 2021, with the ultimate requirement being linked to the speed of recovery.

CAPITAL INVESTMENT

We have continued to invest in plant and equipment, spending GBP20.4 million in the year plus a further GBP1.0 million on software. Of this, GBP5.7 million is in respect of the new Leeds high volume linen site with the remaining balance of some GBP2.6 million incurred in early 2021. As part of the plan to update the newly acquired Fresh Linen plant in Clacton, GBP2.0 million was spent to ensure the long-term operational resilience of this site. The remaining spend is in respect of upgrading processing equipment across the estate to increase capacity and improve productivity.

DEFINED BENEFIT PENSION SCHEME LIABILITIES

As at 31 December 2020, the Scheme's assets had increased by GBP5.4 million, to GBP226.7 million, after paying out benefits of GBP14.2 million during the year. The net deficit, including deferred taxation, has, however, increased to GBP11.2 million (2019: GBP5.2 million) due largely to a decrease in the discount rate utilised in deriving the value of scheme liabilities.

The triennial valuation of the Scheme, as at 30 September 2019, was completed during the year. We are tracking ahead of the recovery plan put in place at the time of the 2016 valuation and we have therefore agreed with the Trustee that the existing deficit recovery payment of GBP1.9 million per annum will continue in equal monthly instalments until the next review in three years' time.

Clearly, the deficit calculated under both the provisions of IAS19 and under the statutory funding objective is sensitive to changes in the discount rate, based on corporate bond or gilt yields as appropriate. The asset allocation of the Scheme is kept under review so that the impact of a reduction in the discount rate and an increase in inflation or interest rates is, at least in part, offset by a corresponding increase in asset values. In addition, the review also considers alternative asset classes which earn a reasonable level of return but with lower volatility and therefore a reduction in risk. Appropriate changes to the investment allocation have been implemented in order to achieve these goals. The Scheme has fully divested of its direct equity investments.

BALANCE SHEET AND CAPITAL STRUCTURE

The Group maintains a strong Balance Sheet, with net assets having increased to GBP255.5 million (2019: GBP207.5 million).

As previously mentioned, gearing, for bank purposes will, from March 2022, be calculated as adjusted EBITDA compared to total debt, including IFRS 16 liabilities, and the agreed covenant is for the ratio to be not more than three times. The Group's medium to long-term intention is to return the capital structure such that we operate between one and two times on this basis, other than for short term specific exceptions. Under this framework, our capital allocation policy remains unchanged and will take into account the following criteria as part of a periodic 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.

GOING CONCERN

The Group has reacted quickly and decisively to the COVID-19 pandemic, implementing a range of prudent cost management and cash preservation actions, securing additional funding facilities, revising bank covenants and raising equity in order to protect the business from any potential adverse impact. Notwithstanding all of these actions, there continues to be uncertainty surrounding the resolution of the pandemic and the impact on the wider economy.

The current and plausible future impact of COVID-19 and the related macroeconomic environment on the Group's activities and performance has been considered by the Board in preparing its going concern assessment. The Group has prepared a base case scenario, reflecting an initial set of assumptions around financial projections and trading performance, together with various, more pessimistic, expectations for market developments over the remainder of 2021 and 2022 to reflect subdued trading conditions.

After considering the financial scenarios, the severe but plausible sensitivities and the facilities available to the Group, the Directors have a reasonable expectation that the Group has adequate resources for its operational needs, will remain in compliance with the financial covenants in its bank facilities and will continue in operation for at least the next 12 months from the date of approving the financial statements. As a consequence, and having reassessed the principal risks and uncertainties, the Directors considered it appropriate to adopt the going concern basis in preparing the financial statements.

The process and key judgments in coming to this conclusion are set out in further detail within note 1.

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 (loss)/profit and adjusted diluted (loss)/earnings per share from Continuing Operations. Non-financial KPIs, as referred to within the Chief Executive's Operating Review, include our employee and customer survey results and customer retention statistics.

ALTERNATIVE PERFORMANCE MEASURES (APMS)

Throughout the Statement we refer to a number of APMs. APMs are used by the Group to provide further clarity and transparency of the Group's underlying financial performance. The APMs are 'adjusted operating (loss)/profit' which refers to continuing operating (loss)/profit before amortisation of intangible assets (excluding software amortisation) and exceptional items, 'adjusted (loss)/profit before taxation' which refers to adjusted operating (loss)/profit less total finance cost, 'adjusted EBITDA' which 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 and 'adjusted EPS' which refers to EPS calculated based on adjusted (loss)/profit after taxation.

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 the underlying trends and performance of the Group.

SUMMARY

The strategy of the Group is to continue to expand our Textile Services business through targeted capital investment, organic growth and acquisition. We have a strong balance sheet to support this strategy with future funding in place to support planned investment. The opening of our Leeds facility will provide additional processing capacity to aid organic growth once the markets we serve return.

Yvonne Monaghan

Chief Financial Officer

19 March 2021

CONSOlidated Income Statement

 
                                                             Year ended    Year ended 
                                                            31 December   31 December 
                                                                   2020          2019 
                                                     Note          GBPm          GBPm 
 
 
Revenue                                               2           229.8         350.6 
 
Operating (loss) / profit                             2          (27.4)          42.7 
 
Operating (loss) / profit before amortisation 
 of intangible assets 
 (excluding software amortisation) and exceptional 
 items                                                2          (12.1)          52.8 
 
Amortisation of intangible assets (excluding 
 software amortisation)                                          (11.0)        (10.1) 
 
Exceptional items                                     3 
 - Business acquisition costs                                         -             - 
 - Restructuring costs                                            (5.8)             - 
 - Insurance claims                                                 2.5             - 
 - Impairment losses re insurance claims                          (1.0)             - 
Operating (loss) / profit                             2          (27.4)          42.7 
 
Finance cost                                          4           (4.9)         (4.6) 
---------------------------------------------------  ----  ------------  ------------ 
(Loss) / profit before taxation                                  (32.3)          38.1 
 
  Taxation credit / (charge)                          6             5.2         (7.2) 
---------------------------------------------------  ----  ------------  ------------ 
 
  (Loss) / profit for the year attributable to 
  equity holders                                                 (27.1)          30.9 
---------------------------------------------------  ----  ------------  ------------ 
 
EARNINGS PER SHARE                                    7 
Basic (loss) / earnings per share                                (6.6)p          8.4p 
Diluted (loss) / earnings per share                              (6.6)p          8.3p 
Adjusted basic (loss) / earnings per share                       (3.4)p         10.6p 
Adjusted diluted (loss) / earnings per share                     (3.4)p         10.5p 
 

Consolidated Statement of COMPREHENSIVE Income

 
                                                                                           Year ended    Year ended 
                                                                                          31 December   31 December 
                                                                                                 2020          2019 
                                                                                   Note          GBPm          GBPm 
 
(Loss) / profit for the year                                                                   (27.1)          30.9 
---------------------------------------------------------------------------------  ----  ------------  ------------ 
Items that will not be subsequently 
 reclassified to profit or loss 
Re-measurement and experience losses on 
 post-employment benefit obligations                                                10          (9.4)         (4.5) 
Taxation in respect of re-measurement 
 and experience losses                                                                            1.7           0.7 
Change in deferred tax due to change 
 in tax rate                                                                                      0.2             - 
Items that may be subsequently reclassified 
 to profit or loss 
Cash flow hedges (net of taxation) 
 - fair value losses                                                                            (2.9)         (0.2) 
                                                       - transfers to 
                                                        administrative 
                                                        expenses                                  1.8           0.1 
                                                       - transfers to 
                                                        finance cost                              0.6           0.2 
----------------------------------------------------------------------------  ---  ----  ------------  ------------ 
Total other comprehensive loss for 
 the year                                                                                       (8.0)         (3.7) 
Total comprehensive (loss) / income 
 for the year                                                                                  (35.1)          27.2 
---------------------------------------------------------------------------------  ----  ------------  ------------ 
 
 

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

 
                                                                     Capital 
                                   Share      Share     Merger    Redemption      Hedge    Retained      Total 
                                 Capital    Premium    Reserve       Reserve    Reserve    Earnings     Equity 
                                    GBPm       GBPm       GBPm          GBPm       GBPm        GBPm       GBPm 
 
 Balance at 31 December 
  2018                              36.8       15.7        1.6           0.6      (0.6)       136.3      190.4 
---------------------------------  -----  ---------  ---------  ------------  ---------  ----------  --------- 
 Prior year change in 
  accounting standard                  -          -          -             -          -         0.2        0.2 
 Restated balance at 
  1 January 2019                    36.8       15.7        1.6           0.6      (0.6)       136.5      190.6 
 
 Profit for the year                   -          -          -             -          -        30.9       30.9 
 Other comprehensive 
  income / (loss)                      -          -          -             -        0.1       (3.8)      (3.7) 
---------------------------------  -----  ---------  ---------  ------------  ---------  ----------  --------- 
 Total comprehensive income 
  for the year                         -          -          -             -        0.1        27.1       27.2 
---------------------------------  -----  ---------  ---------  ------------  ---------  ----------  --------- 
 
 Share options (value 
  of employee services)                -          -          -             -          -         0.8        0.8 
 Purchase of own shares 
  by EBT                               -          -          -             -          -       (0.2)      (0.2) 
 Current tax on share 
  options                              -          -          -             -          -         0.3        0.3 
 Deferred tax on share 
  options                              -          -          -             -          -         0.2        0.2 
 Issue of share capital              0.2        0.4          -             -          -           -        0.6 
 Dividend paid                         -          -          -             -          -      (12.0)     (12.0) 
 Transactions with Shareholders 
 recognised directly 
 in Shareholders' equity             0.2        0.4          -             -          -      (10.9)     (10.3) 
---------------------------------  -----  ---------  ---------  ------------  ---------  ----------  --------- 
 
 Balance at 31 December 
  2019                              37.0       16.1        1.6           0.6      (0.5)       152.7      207.5 
---------------------------------  -----  ---------  ---------  ------------  ---------  ----------  --------- 
 
 
 Loss for the year                     -          -          -             -          -      (27.1)     (27.1) 
 Other comprehensive 
  loss                                 -          -          -             -      (0.5)       (7.5)      (8.0) 
---------------------------------  -----  ---------  ---------  ------------  ---------  ----------  --------- 
 Total comprehensive 
  loss for the year                    -          -          -             -      (0.5)      (34.6)     (35.1) 
---------------------------------  -----  ---------  ---------  ------------  ---------  ----------  --------- 
 
 Share options (value 
  of employee services)                -          -          -             -          -         0.4        0.4 
 Deferred tax on share 
  options                              -          -          -             -          -       (0.2)      (0.2) 
 Issue of share capital              7.4        0.2          -             -          -        75.3       82.9 
 
 Transactions with Shareholders 
 recognised directly 
 in Shareholders' equity             7.4        0.2          -             -          -        75.5         83.1 
---------------------------------  -----  ---------  ---------  ------------  ---------  ----------  ----------- 
 
 Balance at 31 December 
  2020                              44.4       16.3        1.6           0.6      (1.0)       193.6      255.5 
---------------------------------  -----  ---------  ---------  ------------  ---------  ----------  --------- 
 
 

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 2020 the EBT held 8,388 shares (2019: 12,468).

Consolidated Balance Sheet

 
                                                              As at         As at 
                                                        31 December   31 December 
                                                               2020          2019 
                                                Note           GBPm          GBPm 
Assets 
Non-current assets 
Goodwill                                          9           130.9         130.5 
Intangible assets                                10            27.7          36.7 
Property, plant and equipment                    11           107.2         104.0 
Right of use assets                              12            38.5          39.0 
Textile rental items                             13            35.6          56.8 
Trade and other receivables                                     0.4           0.7 
Deferred income tax assets                                        -           2.6 
                                                              340.3         370.3 
----------------------------------------------  -----  ------------  ------------ 
 
Current assets 
Inventories                                                     1.4           2.3 
Trade and other receivables                                    31.3          54.5 
Current income tax assets                                       3.0             - 
Cash and cash equivalents                                       7.8           8.3 
                                                               43.5          65.1 
----------------------------------------------  -----  ------------  ------------ 
 
Liabilities 
Current liabilities 
Trade and other payables                                       64.8          69.2 
Current income tax liabilities                                    -           4.5 
Borrowings                                       14             1.0          10.9 
Lease liabilities                                15             5.5           5.6 
Derivative financial liabilities                                0.1             - 
Provisions                                                      2.0           1.4 
                                                               73.4          91.6 
----------------------------------------------  -----  ------------  ------------ 
 
Non-current liabilities 
Post-employment benefit obligations              16            14.9           7.3 
Deferred income tax liabilities                                 1.2           6.8 
Trade and other payables                                        0.4           0.5 
Borrowings                                       14               -          84.7 
Lease liabilities                                15            35.1          34.8 
Derivative financial liabilities                                2.0           0.5 
Provisions                                                      1.3           1.7 
----------------------------------------------  -----  ------------  ------------ 
                                                               54.9         136.3 
----------------------------------------------  -----  ------------  ------------ 
Net assets                                                    255.5         207.5 
----------------------------------------------  -----  ------------  ------------ 
 
Equity 
Capital and reserves attributable to the company's 
 shareholders 
Share capital                                    19            44.4          37.0 
Share premium                                                  16.3          16.1 
Merger reserve                                                  1.6           1.6 
Capital redemption reserve                                      0.6           0.6 
Hedge reserve                                                 (1.0)         (0.5) 
Retained earnings                                             193.6         152.7 
----------------------------------------------  -----  ------------  ------------ 
Total equity                                                  255.5         207.5 
----------------------------------------------  -----  ------------  ------------ 
 

The notes on pages 22 to 40 form an integral part of these condensed consolidated financial statements. The condensed consolidated financial statements on pages 18 to 40 were approved by the Board of Directors on 19 March 2021 and signed on its behalf by:

Yvonne Monaghan

Chief Financial Officer

Consolidated Statement OF Cash Flows

 
                                                                  Year ended    Year ended 
                                                                 31 December   31 December 
                                                                        2020          2019 
                                                          Note          GBPm          GBPm 
Cash flows from operating activities 
(Loss) / profit for the year                                          (27.1)          30.9 
Adjustments for: 
Taxation (credit) / charge                                 4           (5.2)           7.2 
Total finance cost                                         5             4.9           4.6 
Depreciation and impairment                                             66.2          66.1 
Amortisation                                               10           11.2          10.2 
Loss on disposal of tangible fixed assets                                0.8             - 
Loss on disposal of textile rental items                                 0.2             - 
Decrease in inventories                                                  0.9           0.6 
Decrease / (increase) in trade and other receivables                    23.7         (0.5) 
(Decrease) / increase in trade and other payables                      (0.2)           2.2 
Deficit recovery payments in respect of post-employment 
 benefit obligations                                                   (1.9)         (1.9) 
Share-based payments                                                     0.4           0.8 
Increase / (decrease) in provisions                                      0.2         (0.2) 
Commodity swaps not qualifying as hedges                                 0.3             - 
Exceptional items relating to investing activities                     (2.5)             - 
Cash generated from operations                                          71.9         120.0 
Interest paid                                                          (4.0)         (4.6) 
Taxation paid                                                          (3.4)         (9.3) 
--------------------------------------------------------  ----  ------------  ------------ 
Net cash generated from operating activities                            64.5         106.1 
--------------------------------------------------------  ----  ------------  ------------ 
 
Cash flows from investing activities 
Acquisition of businesses (net of cash and overdrafts 
 acquired)                                                             (0.9)         (8.5) 
Purchase of other intangible assets                                    (1.2)         (2.3) 
Purchase of property, plant and equipment                             (20.4)        (18.8) 
Proceeds from insurance claims                                           2.5             - 
Purchase of software                                                   (1.0)         (1.2) 
Proceeds from sale of property, plant and equipment                      0.2           0.3 
Purchase of textile rental items                                      (28.1)        (48.2) 
Proceeds received in respect of special charges            13            2.1           2.3 
Net cash used in investing activities                                 (46.8)        (76.4) 
--------------------------------------------------------  ----  ------------  ------------ 
 
Cash flows from financing activities 
Proceeds from borrowings                                                58.0          88.0 
Repayment of borrowings                                              (143.0)        (91.1) 
Capital element of leases                                              (6.1)        (13.2) 
Purchase of own shares by EBT                                              -         (0.2) 
Proceeds from issue of Ordinary shares                      19          82.9           0.6 
Dividend paid                                                              -        (12.0) 
--------------------------------------------------------  ----  ------------  ------------ 
Net cash used in financing activities                                  (8.2)        (27.9) 
--------------------------------------------------------  ----  ------------  ------------ 
 
Net increase in cash and cash equivalents                                9.5           1.8 
Cash and cash equivalents at beginning of year                         (2.9)         (4.7) 
Cash and cash equivalents at end of year                   17            6.6         (2.9) 
--------------------------------------------------------  ----  ------------  ------------ 
 

Cash and cash equivalents comprise:

 
Cash                                          7.8     8.3 
Overdraft                                   (1.2)  (11.2) 
Cash and cash equivalents at end of year      6.6   (2.9) 
------------------------------------------  -----  ------ 
 

NOTES TO THE PRELIMINARY ANNOUNCEMENT

   1              BASIS OF PREPARATION & FORWARD LOOKING STATEMENTS 

Basis of Preparation

The financial information contained within this Preliminary Announcement has been prepared on a going concern basis in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union.

The financial information has been prepared using accounting policies consistent with those set out in the 2019 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 2020 or 31 December 2019 within the meaning of Section 434 of the Companies Act 2006, but is derived from those accounts.

Statutory accounts for 2019 have been delivered to the Registrar of Companies, and those for 2020 will be delivered as soon as practicable but not later than 30 April 2021. 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

The Directors have adopted the going concern basis in preparing these financial statements after careful assessment of identified principal risks and, in particular, the possible adverse impact on financial performance, specifically on revenue and cash flows, of restrictions imposed by the UK Government and the devolved authorities in response to COVID-19. The process and key judgments in coming to this conclusion are set out below.

Going Concern Assessment

The Group has reacted quickly and decisively to the COVID-19 pandemic, implementing a range of prudent cost management and cash preservation actions, securing additional funding facilities, revising bank covenants and raising equity in order to protect the business from any potential adverse impact. Notwithstanding all of these actions, there continues to be uncertainty surrounding the resolution of the pandemic and the impact on the wider economy.

The current and plausible future impact of COVID-19 and the related macroeconomic environment on the Group's activities and performance has been considered by the Board in preparing its going concern assessment. The Group has prepared a base case scenario, reflecting an initial set of assumptions around financial projections and trading performance, together with various, more pessimistic, expectations for market developments over the remainder of 2021 and 2022 to reflect subdued trading conditions. The specific assumptions used within the base case scenario, with regard to the assumed dates for the staged reopening of hospitality, follow those set out within the UK Government's recently announced four-step roadmap for the easing of restrictions across England. It is assumed that arrangements within the devolved geographies will follow a similar roadmap.

The Board is required to assess going concern at each reporting period. These assessments are significantly more difficult currently given the uncertainties about the impact of COVID-19, the extent and duration of social distancing measures and the impact on the markets in which we operate. The level of judgment to be applied has therefore increased considerably. The Directors have considered three main factors in reaching their conclusions on going concern, as set out below.

1) Cash Flows and Sensitivity Analysis

In assessing going concern, the Directors considered a variety of scenarios in the context of the COVID-19 pandemic. These scenarios are not the forecasts of the Group or Company but are designed to stress test liquidity and covenant compliance. EBITDA used within the scenarios is that used for bank covenant purposes which, for 2021, is defined as adjusted operating profit before property, plant and equipment depreciation, rental stock depreciation and software amortisation. In 2022, the definition is amended to also exclude right of use asset depreciation. The three most relevant scenarios, in ascending order of severity, reviewed to test going concern are as follows:

Base Case Scenario

This scenario assumes that the HORECA market gradually begins to reopen during the second quarter. April assumes a modest increase in current volumes, based on the planned reopening of gyms, outdoor hospitality and self-catering holiday accommodation on 12 April whilst May assumes a more stepped increase as a result of the planned reopening of indoor hospitality (pubs and restaurants), hotels and B&Bs on 17 May. By June 2021, this scenario assumes that volumes have reached between 50% and 70% of normalised levels, such range reflecting the nuances of specific sub-markets within the overall HORECA market, for example, restaurants, hotels, contract catering. Volumes increase month on month thereafter, reaching a maximum of 85% of normalised volumes by September 2021 with modest increases thereafter to reach 90% of normalised volumes by December 2021. Further modest monthly increases are then assumed throughout 2022.

Delay in Lifting of Restrictions Scenario

In this scenario the gradual recovery in the HORECA market that is assumed within the Base Case is delayed by two months, up to and including September 2021, reaching a maximum of 75% of normalised volumes in September 2021. Revenue in, and beyond, the final quarter of 2021 is then consistent with that assumed in the Base Case, reflective of a successful vaccine rollout and pent-up consumer demand.

Severe but Plausible Scenario

This scenario largely mirrors that within the 'Delay in Lifting of Restrictions Scenario' above, however, further restrictions are assumed during the winter months (for example, maximum group sizes of six) which subdues volumes further.

2) Covenants

As previously announced, at the same time as extending its bank facilities in 2020, the Group also renegotiated its banking covenants such that the pre-existing covenants were replaced, up to and including until the December 2021 covenant test date, with a maximum net debt and a minimum EBITDA threshold. From March 2022, the covenants will revert to a leverage and interest covenant test. In all three scenarios above, the financial projections indicate that the Group would remain in compliance with the financial covenants in its bank facilities. A decline in underlying EBIT / EBITDA well in excess of that contemplated in the scenarios would need to persist throughout the period for a covenant breach to occur. The Directors do not consider such a scenario plausible.

The Group also has a number of mitigating actions under its control (not all of which were included in the scenarios) including minimising capital expenditure to critical requirements, further reducing levels of discretionary spend and rationalising its overhead base in order to be able to meet the covenant tests.

3) Liquidity

The Group extended its committed debt facilities in May 2020. The revised facilities comprise a GBP135 million revolving credit facility, which matures in August 2023, together with a GBP40 million accordion facility, which is due to mature in May 2022 but which may be extended for a further one year, subject to lender approval. Quarterly covenant tests allow for maximum bank borrowings of GBP155 million at each quarter end from September 2020 through to September 2021, reducing to GBP145 million for the quarter ending December 2021. Thereafter, the maximum net debt covenant falls away and is effectively replaced with a leverage covenant.

Following the successful equity placement that raised net proceeds of GBP82.7 million, the Group repaid its bank borrowings. As a consequence, the bank facilities available to the Group provide significant liquidity in all scenarios modelled.

Going Concern Statement

After considering the current financial scenarios, the severe but plausible sensitivities 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 next 12 months from the date of approving both the Group and Company financial statements. As a consequence, 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.

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.

   2              SEGMENT ANALYSIS 

Segment information is presented based on the Group's management and internal reporting structure as at 31 December 2020.

The chief operating decision-maker has been identified as the Board of Directors (the Board). The Board reviews the Group's internal reporting in order to assess performance and allocate resources. The Board determines the operating segments based on these reports and on the internal reporting structure.

For reporting purposes, the Board 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 (e.g. 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 Board deem 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, Restaurants and Catering ('HORECA'): comprising of our Stalbridge, London Linen, and Hotel Linen businesses, each of which are a separate operating segment.

The Board's rationale for aggregating the Stalbridge, London Linen, and Hotel Linen 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 Board 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 Board. 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 Board is measured in a manner consistent with that in the financial statements. Segment assets exclude deferred income tax assets, derivative financial 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 25 to 26.

 
 Workwear 
  Supply and laundering of workwear             *    Workwear 
  garments and protective wear. 
 
  HORECA 
  Linen services for the hotel, restaurant 
  and catering sector.                          *    Stalbridge 
 
 
                                                *    London Linen 
 
 
                                                *    Hotel Linen 
 All Other Segments 
  Comprising of central and Group costs. 
 
   2          SEGMENT ANALYSIS continued 
 
                                                                                 All 
                                                                               Other 
 Year ended 31 December 2020                         Workwear     HORECA    Segments    Total 
                                                         GBPm       GBPm        GBPm     GBPm 
 Revenue 
 Rendering of services                                  127.1      100.3           -    227.4 
 Sale of goods                                            2.4          -           -      2.4 
------------------------------------------------  -----------  ---------  ----------  ------- 
 Total revenue                                          129.5      100.3           -    229.8 
------------------------------------------------  -----------  ---------  ----------  ------- 
 
 Result 
 Operating profit / (loss) before amortisation 
  of intangible assets (excluding software 
  amortisation) and exceptional items                    23.3     (31.5)       (3.9)   (12.1) 
 Amortisation of intangible assets 
  (excluding software amortisation)                     (0.1)     (10.9)           -   (11.0) 
 Exceptional items                                      (0.1)      (4.2)           -    (4.3) 
 Operating profit / (loss)                               23.1     (46.6)       (3.9)   (27.4) 
 Total finance cost                                                                     (4.9) 
 Loss before taxation                                                                  (32.3) 
 Taxation credit                                                                          5.2 
------------------------------------------------  -----------  ---------  ----------  ------- 
 Loss for the year attributable to 
  equity holders                                                                       (27.1) 
------------------------------------------------  -----------  ---------  ----------  ------- 
 
 
                                                                                                               All 
                                                              Discontinued                                   Other 
                                                                Operations           Workwear    HORECA   Segments     Total 
                                                                      GBPm               GBPm      GBPm       GBPm      GBPm 
 Balance sheet information 
 Segment assets                                                          -              132.1     239.1        1.8     373.0 
 Unallocated assets: Current 
  income tax assets                                                                                                      3.0 
                                   Cash and cash 
                                    equivalents                                                                          7.8 
 Total assets                                                                                                          383.8 
-----------------------------------------------------------  -------------  -----------------  --------  ---------  -------- 
 
 Segment liabilities                                                 (3.5)             (47.1)    (55.0)      (3.5)   (109.1) 
 Unallocated liabilities: Bank 
  borrowings                                                                                                           (1.0) 
                                    Derivative 
                                     financial 
                                     liabilities                                                                       (2.1) 
                                    Post-employment 
                                     benefit 
                                     obligations                                                                      (14.9) 
                                    Deferred income tax 
                                     liabilities                                                                       (1.2) 
 Total liabilities                                                                                                   (128.3) 
-----------------------------------------------------------  -------------  -----------------  --------  ---------  -------- 
 
 
 Other information 
 Non-current asset additions 
 - Property, plant and equipment                                         -                6.0      14.7          -      20.7 
 - Right of use assets                                                   -                3.4       1.8          -       5.2 
 - Textile rental items                                                  -               14.1       9.8          -      23.9 
 - Intangible software                                                   -                1.0         -          -       1.0 
 - Customer contracts                                                    -                  -       1.2          -       1.2 
 Depreciation, impairment and 
  amortisation expense 
 - Property, plant and equipment                                         -                5.3      11.2          -      16.5 
 - Right of use assets depreciation                                      -                2.2       4.5        0.1       6.8 
 - Right of use assets impairment                                        -                0.1         -          -       0.1 
 - Textile rental items depreciation                                     -               17.7      24.5          -      42.2 
 - Textile rental items impairment                                       -                  -       0.6          -       0.6 
 - Intangible software                                                   -                0.2         -          -       0.2 
 - Customer contracts                                                    -                0.1      10.9          -      11.0 
-----------------------------------------------------   ------------------  -----------------  --------  ---------  -------- 
 
 

The results, assets and liabilities of all segments arise in the Group's country of domicile, being the United Kingdom.

   2          SEGMENT ANALYSIS continued 
 
                                                                           All 
                                                                            Other 
 Year ended 31 December 2019                         Workwear     HORECA    Segments    Total 
                                                         GBPm       GBPm        GBPm     GBPm 
 Revenue 
 Rendering of services                                  131.3      215.0           -    346.3 
 Sale of goods                                            4.0        0.3           -      4.3 
------------------------------------------------  -----------  ---------  ----------  ------- 
 Total revenue                                          135.3      215.3           -    350.6 
------------------------------------------------  -----------  ---------  ----------  ------- 
 
 Result 
 Operating profit / (loss) before amortisation 
  of intangible assets (excluding software 
  amortisation) and exceptional items                    24.4       33.1       (4.7)     52.8 
 Amortisation of intangible assets 
  (excluding software amortisation)                     (0.5)      (9.6)           -   (10.1) 
 Exceptional items                                          -          -           -        - 
 Operating profit / (loss)                               23.9       23.5       (4.7)     42.7 
 Total finance cost                                                                     (4.6) 
------------------------------------------------ 
 Profit before taxation                                                                  38.1 
 Taxation charge                                                                        (7.2) 
------------------------------------------------  -----------  ---------  ----------  ------- 
 Profit for the year attributable to 
  equity holders                                                                         30.9 
------------------------------------------------  -----------  ---------  ----------  ------- 
 
 
 
                                                                                                All 
                                                       Discontinued                           Other 
                                                         Operations   Workwear    HORECA   Segments     Total 
                                                               GBPm       GBPm      GBPm       GBPm      GBPm 
 Balance sheet information 
 Segment assets                                                   -      139.3     284.0        1.2     424.5 
 Unallocated assets: Deferred 
  income tax assets                                                                                       2.6 
                                   Cash and cash 
                                    equivalents                                                           8.3 
----------------------------------------------------  -------------  ---------  --------  ---------  -------- 
 Total assets                                                                                           435.4 
----------------------------------------------------  -------------  ---------  --------  ---------  -------- 
 
 Segment liabilities                                          (3.5)     (39.3)    (65.6)      (4.8)   (113.2) 
 Unallocated liabilities: Current 
  income tax liabilities                                                                                (4.5) 
                                    Bank borrowings                                                    (95.6) 
                                    Derivative 
                                     financial 
                                     liabilities                                                        (0.5) 
                                    Post-employment 
                                     benefit 
                                     obligations                                                        (7.3) 
                                    Deferred income 
                                     tax liabilities                                                    (6.8) 
----------------------------------------------------  -------------  ---------  --------  ---------  -------- 
 Total liabilities                                                                                    (227.9) 
----------------------------------------------------  -------------  ---------  --------  ---------  -------- 
 
 
 Other information 
 Non-current asset additions 
 - Property, plant and equipment                                  -        5.6      13.9          -      19.5 
 - Right of use assets                                            -        1.7       4.8          -       6.5 
 - Textile rental items                                           -       20.5      25.6          -      46.1 
 - Intangible software                                            -        1.3         -          -       1.3 
 - Customer contracts                                             -          -       2.3          -       2.3 
 Depreciation and amortisation 
  expense 
 - Property, plant and equipment                                  -        4.6       9.3          -      13.9 
 - Right of use assets                                            -        2.2       4.9          -       7.1 
 - Textile rental items                                           -       17.9      27.2          -      45.1 
 - Intangible software                                            -        0.1         -          -       0.1 
 - Customer contracts                                             -        0.5       9.6          -      10.1 
----------------------------------------------------  -------------  ---------  --------  ---------  -------- 
 
 

The results, assets and liabilities of all segments arise in the Group's country of domicile, being the United Kingdom.

   3          EXCEPTIONAL ITEMS 
 
                                                       2020   2019 
                                                       GBPm   GBPm 
 
 
 Costs in relation to business acquisition activity       -      - 
 Restructuring costs                                  (5.8)      - 
 Insurance claims                                       2.5      - 
 Impairment losses re insurance claims                (1.0)      - 
 Total exceptional items                              (4.3)      - 
---------------------------------------------------  ------  ----- 
 

Current year exceptional items

Restructuring costs

Restructuring costs include GBP4.7 million of redundancy costs relating to the realignment of the workforce in response to the impact of COVID-19 and GBP1.1 million in respect of the closure of the Workwear plant in Newmarket, of which GBP0.4 million related to redundancy costs.

Insurance claims and impairment losses

During the year, a Workwear processing plant was destroyed as a result of a fire. Plant and equipment with a net book value of GBP0.5 million and Textile rental items with a net book value of GBP0.2 million were destroyed and have been written off. Interim insurance proceeds of GBP1.5 million have been received. Negotiations are continuing with the insurers for a final settlement value which is expected in 2021.

A further Workwear processing plant was damaged as a result of flooding during the year. Plant and equipment with a net book value of GBP0.3 million has been written off. Interim insurance proceeds of GBP1.0 million have been received. Negotiations are continuing with the insurers for a final settlement value which is expected in 2021.

Prior year exceptional items

Costs in relation to business acquisition activity

During the prior year, professional fees of GBP0.1 million were paid relating to the acquisition of Fresh Linen Holdings Limited, together with its trading subsidiary Fresh Linen Limited and a further dormant company Pure Laundry Limited ('Fresh Linen'). This was offset by GBP0.1 million of prior year credits relating to previous acquisitions.

   4          FINANCE COST 
 
                                                                 2020   2019 
                                                                 GBPm   GBPm 
 
 Finance cost: 
 - Interest payable on bank loans and overdrafts                  2.0    2.4 
 - Discontinuance of hedge accounting on interest 
  rate swaps previously designated as cash flow hedges            0.6      - 
 - Loss on interest rate swaps not qualifying as 
  hedges                                                          0.1      - 
 - Amortisation of bank facility fees                             0.4    0.3 
 - Finance costs on lease liabilities relating to 
  IFRS 16 (note 15)                                               1.7    1.8 
 - Notional interest on post-employment benefit obligations 
  (note 16)                                                       0.1    0.1 
 Total finance cost                                               4.9    4.6 
--------------------------------------------------------------  -----  ----- 
 
 

Following the equity placing in June 2020 which raised GBP82.7 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 GBP0.6 million, as at 30 June 2020, was transferred from equity and recognised as an expense within finance costs. From July 2020, the change in fair value on interest rate swaps was recognised directly within finance costs resulting in a GBP0.1 million charge. Of the total GBP0.7 million charge to the Consolidated Income Statement in 2020 in relation to interest rate swaps, GBP0.6 million would have been charged in future periods had hedge accounting been applicable.

   5          ALTERNATIVE PERFORMANCE MEASURES (APM's) 

Throughout this Preliminary Statement, we refer to a number of APMs. A reconciliation of the APMs used are shown below:

 
                                                    2020    2019 
                                                    GBPm    GBPm 
 
 (Loss) / profit before taxation                  (32.3)    38.1 
 Amortisation of intangible assets (excluding 
  software amortisation)                            11.0    10.1 
 Exceptional items                                   4.3       - 
 Adjusted (loss) / profit before taxation         (17.0)    48.2 
 Taxation thereon                                    3.2   (9.1) 
-----------------------------------------------  -------  ------ 
 Adjusted (loss) / profit after taxation          (13.8)    39.1 
-----------------------------------------------  -------  ------ 
 
 
 Operating (loss) / profit before amortisation 
  of intangible assets 
  (excluding software amortisation) and exceptional 
  items                                                  (12.1)    52.8 
 Software amortisation                                      0.2     0.1 
 Property, plant and equipment depreciation                16.5    13.9 
 Right of use asset depreciation                            6.8     7.1 
 Textile rental items depreciation                         42.2    45.1 
-----------------------------------------------------  --------  ------ 
 Adjusted EBITDA                                           53.6   119.0 
-----------------------------------------------------  --------  ------ 
 
   6           TAXATION 
 
                                                       2020    2019 
                                                       GBPm    GBPm 
 
 Current tax 
 UK corporation tax (credit) / charge for the 
  year                                                (3.7)     9.4 
 Adjustment in relation to previous years             (0.4)   (0.5) 
---------------------------------------------------  ------  ------ 
 Current tax (credit) / charge for the year           (4.1)     8.9 
 
 Deferred tax 
 Origination and reversal of temporary differences    (1.9)   (1.7) 
 Changes in tax rate                                    0.7   (0.2) 
 Adjustment in relation to previous years               0.1     0.2 
--------------------------------------------------- 
 Deferred tax credit for the year                     (1.1)   (1.7) 
                                                     ------  ------ 
 Total (credit) / charge for taxation included 
  in the Consolidated Income Statement                (5.2)     7.2 
---------------------------------------------------  ------  ------ 
 

The tax (credit) / charge for the year is lower than (2019: the same as) the effective rate of Corporation Tax in the UK of 19% (2019: 19%). A reconciliation is provided below:

 
                                                         2020    2019 
                                                         GBPm    GBPm 
 
 Profit before taxation                                (32.3)    38.1 
----------------------------------------------------  -------  ------ 
 Profit before taxation multiplied by the effective 
  rate of Corporation Tax in the UK                     (6.1)     7.2 
 
 Factors affecting taxation charge for the year: 
 Tax effect of expenses not deductible for tax 
  purposes                                                0.5     0.5 
 Changes in tax rate                                      0.7   (0.2) 
 Adjustments in relation to previous years              (0.3)   (0.3) 
----------------------------------------------------  -------  ------ 
 Total (credit) / charge for taxation included 
  in the Consolidated Income Statement                  (5.2)     7.2 
----------------------------------------------------  -------  ------ 
 

Taxation in relation to amortisation of intangible assets (excluding software amortisation) has increased the credit for taxation on continuing operations by GBP1.2 million (2019: GBP1.9 million reduction to the charge). Taxation in relation to exceptional items has increased the credit for taxation on continuing operations by GBP0.8 million (2019: no change).

The Finance Bill 2016 enacted provisions to reduce the main rate of UK corporation tax to 17% from 1 April 2020. However, in the March 2020 Budget it was announced that the reduction in the UK rate to 17% will now not occur and the Corporation Tax Rate will be held at 19%. The Group has recognised deferred tax balances at 19% accordingly.

Deferred income taxes at the balance sheet date have been measured at 19% (2019: 17%). The impact of the change in tax rates to 19% from 17% has been a GBP0.7 million charge (2019: GBP0.2 million credit) in the Consolidated Income Statement and a GBP0.2 million charge (2019: GBPnil) recognised within other comprehensive income.

During the year, a deferred taxation credit of GBP1.7 million (2019: GBP0.7 million credit) has been recognised in other comprehensive income in relation to post-employment benefit obligations.

During the year, GBPnil relating to current taxation (2019: GBP0.3 million credit) and a GBP0.2 million charge relating to deferred taxation (2019: GBP0.2 million credit) have been recognised directly in Shareholders' equity.

In the Budget 2021, the government announced that the rate of UK corporation tax will increase to 25% from 6 April 2023 for businesses with profits of GBP250,000 or more. The rate will remain at 19% until that date. The legislation to implement this new law has not been substantively enacted as at the date of this report and, therefore, no adjustment to deferred tax balances has been recognised in the Consolidated Financial Statements. However, the impact of the rate change is not expected to be material to the Group.

   7          EARNINGS PER SHARE 
 
                                                             2020          2019 
                                                             GBPm          GBPm 
 
 
 Profit for the financial year from continuing 
  operations attributable to Shareholders                  (27.1)          30.9 
 Amortisation of intangible assets from continuing 
  operations (net of taxation)                                9.8           8.2 
 Exceptional costs from continuing operations 
  (net of taxation)                                           3.5             - 
---------------------------------------------------  ------------  ------------ 
 Adjusted profit attributable to Shareholders              (13.8)          39.1 
---------------------------------------------------  ------------  ------------ 
 
                                                           No. of        No. of 
                                                           shares        shares 
 
 Weighted average number of Ordinary shares           412,947,064   369,145,562 
 Potentially dilutive Ordinary shares                     835,491     2,710,583 
---------------------------------------------------  ------------  ------------ 
 Diluted number of Ordinary shares                    413,782,555   371,856,145 
---------------------------------------------------  ------------  ------------ 
 
 Basic earnings per share                                  (6.6)p          8.4p 
---------------------------------------------------  ------------  ------------ 
 Adjustments for amortisation of intangible assets           2.4p          2.2p 
 Adjustment for exceptional items                            0.8p             - 
 Adjusted basic earnings per share                         (3.4)p         10.6p 
 
 Diluted earnings per share                                (6.6)p          8.3p 
---------------------------------------------------  ------------  ------------ 
 Adjustments for amortisation of intangible assets           2.4p          2.2p 
 Adjustment for exceptional items                            0.8p             - 
--------------------------------------------------- 
 Adjusted diluted earnings per share                       (3.4)p         10.5p 
---------------------------------------------------  ------------  ------------ 
 

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, 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) and exceptional items, all net of taxation, and are considered to show the underlying performance of the Group.

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. For the year ended 31 December 2020 potentially dilutive Ordinary shares have not been treated as dilutive, as their inclusion in the diluted earnings per share calculation decreases the loss per share from continuing operations. For the year ending 31 December 2019, potentially dilutive Ordinary shares have been treated as dilutive, as their inclusion in the diluted earnings per share calculation decreases 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.

   8              DIVIDS 

On 20 March 2020, the Board issued a market update regarding the impact of COVID-19 on the business and confirming that, it would, at the upcoming Annual General Meeting on 5 May 2020, withdraw Resolution 3 in the Notice of Annual General Meeting relating to the final dividend payment in respect of 2019 of 2.35 pence per Ordinary share.

Furthermore, and as previously announced on 5 May 2020, the Board have decided not to pay dividends for the financial year ended 31 December 2020. In reaching these decisions, the Board considered the importance of a dividend to the Company's shareholders, the need to preserve the Company's liquidity and the exceptional circumstances that COVID-19 represented. The Board will keep future dividends under review and look to reinstate its dividend policy as trading returns to more normalised levels.

In respect of the financial year ended 31 December 2019, an interim dividend of 1.15 pence per Ordinary share was paid to Shareholders in November 2019, amounting to a distribution for the year of GBP4.3 million.

               9              GOODWILL 
 
                                    2020    2019 
                                    GBPm    GBPm 
 
 Cost 
 Brought forward                   130.5   128.1 
 Business combinations               0.4     2.4 
 Carried forward                   130.9   130.5 
--------------------------------  ------  ------ 
 
 Accumulated impairment losses 
 Brought forward                       -       - 
 Carried forward                       -       - 
-------------------------------   ------  ------ 
 
 Carrying amount 
 Opening                           130.5   128.1 
--------------------------------  ------  ------ 
 Closing                           130.9   130.5 
--------------------------------  ------  ------ 
 

In accordance with International Financial Reporting Standards, goodwill is not amortised, but instead is tested annually for impairment and carried at cost less accumulated impairment losses.

Impairment tests for goodwill

The allocation of goodwill to Cash Generating Units (CGUs) is as follows:

 
                           2020    2019 
                           GBPm    GBPm 
 
 Workwear                  41.7    41.7 
-----------------------  ------  ------ 
 
 Stalbridge                19.1    19.1 
 London Linen              29.2    29.2 
 Hotel Linen (note a)      40.9    40.5 
-----------------------  ------  ------ 
 HORECA                    89.2    88.8 
-----------------------  ------  ------ 
 
 Total                    130.9   130.5 
 
 

Note a

The net increase during the year relates to the goodwill of the 2019 acquisition of Fresh Linen increasing by GBP0.4 million as a result of a fair value adjustment to trade and other payables acquired.

Goodwill is tested for impairment by comparing the carrying value of each CGU against its recoverable amount. The carrying value for each CGU includes the net book value of goodwill, intangible assets and related deferred tax balances, property, plant and equipment, right of use assets, textile rental items and lease liabilities. The recoverable amount for each of the Cash Generating Units (CGUs) is as follows:

 
                   2020      2019 
                   GBPm      GBPm 
 
 Workwear         259.7     596.8 
---------------  ------  -------- 
 
 Stalbridge       108.4     289.2 
 London Linen      60.5     170.1 
 Hotel Linen      149.1     464.7 
---------------  ------  -------- 
 HORECA           318.0     924.0 
---------------  ------  -------- 
 
 Total            577.7   1,520.8 
---------------  ------  -------- 
 

The recoverable amount of a CGU is primarily determined based on value-in-use calculations. These calculations use cash flow projections based on financial budgets and forecasts, ordinarily covering three years, which are approved by the Board. Income and costs within the budget are derived on a detailed, 'bottom up' basis - all income streams and cost lines are considered and appropriate growth, or decline, rates are assumed for each, all of which are then reviewed, challenged and stress tested, firstly by senior management and ultimately by the Board. Income and cost growth forecasts are risk adjusted to reflect specific risks facing each CGU and take into account the markets in which they operate.

Cash flows beyond the above period are, ordinarily, extrapolated using the estimated growth rate stated below, which does not exceed the long-term average growth rate for the markets in which the CGU's operate, into perpetuity. When assessing the recoverable amount for CGUs as at 31 December 2020, the forecasts covered the period to the end of 2022. The Group has stated that, as a result of COVID-19, it does not currently expect trading to normalise to 2019 levels until the second half of 2022. As a result, cash flows for 2023 were assumed, for the purpose of determining the recoverable amount of a CGU only, to be the same as for 2019. Cash flows beyond that period were then extrapolated using the estimated growth rate stated below. Other than as included in the financial forecasts, it is assumed that t here are no material adverse changes in legislation that would affect the forecast cash flows.

The pre-tax discount rate used within the recoverable amount calculations was 10.79% (2019: 6.62%) and is based upon the weighted average cost of capital reflecting specific principal risks and uncertainties. The discount rate takes into account, amongst other things, the risk free rate of return (derived from a 20 year government bond price), the market risk premium, size premium (2020 only) and beta factor reflecting the average Beta for the Group and comparator companies which are used in deriving the cost of equity.

The same discount rate has been used for each CGU as the principal risks and uncertainties associated with the Group, as highlighted on pages 37 to 39, would also impact each CGU in a similar manner. The Board acknowledge that there are additional factors that could impact the risk profile of each CGU. These additional factors were considered by way of sensitivity analysis performed as part of the annual impairment tests. For example, a scenario in line with the "severe but plausible" scenario modelled for going concern purposes (page 22) was used to further sensitise for impairment. The sensitivity did not result in any impairment of goodwill relating to the CGUs. The level of impairment recognised is predominantly dependent upon judgments used in arriving at future growth rates and the discount rate applied to cash flow projections. Key drivers to future growth rates are dependent on the Group's ability to maintain and grow income streams whilst effectively managing operating costs. The level of headroom may change if different growth rate assumptions or a different pre-tax discount rate were used in the cash flow projections. Where the value-in-use calculations suggest an impairment, the Board would consider alternative use values prior to realising any impairment, being the fair value less costs to dispose.

The key assumptions used for value-in-use calculations are as follows:

 
                               2020        2019 
 
 Annual growth rate (after 
  forecast period)            2.00%       1.23% 
 Risk free rate of return     0.72%       1.23% 
 Market risk premium          7.50%       6.25% 
 Beta Factor                   1.05        0.72 
 Size Premium                 3.00%           - 
 Cost of debt                 2.25%       3.27% 
 
 

Having completed the 2020 impairment review, no impairment has been recognised in relation to the CGUs (2019: no impairment). Sensitivity analysis has been performed in assessing the recoverable amounts of goodwill such that the growth rate for the forecast period was reduced to nil. Such a change did not result in any impairment of goodwill relating to the CGU. There are no changes to the key assumptions of growth rate or discount rate that are considered by the Directors to be reasonably possible, which would give rise to an impairment of goodwill relating to the CGUs.

   10            INTANGIBLE ASSETS 

Capitalised software

 
 
                             2020     2019 
                             GBPm     GBPm 
 
 Opening net book value       1.9      0.7 
 Additions                    1.0      1.3 
 Amortisation               (0.2)    (0.1) 
 Closing net book value       2.7      1.9 
------------------------  -------  ------- 
 

Other intangible assets

 
 
                             2020     2019 
                             GBPm     GBPm 
 
 Opening net book value      34.8     38.6 
 Additions                    1.2      2.3 
 Business combinations          -      4.0 
 Amortisation              (11.0)   (10.1) 
 Closing net book value      25.0     34.8 
------------------------  -------  ------- 
 

Other intangible assets comprise of customer contracts and relationships. During the year to 31 December 2020, the Group acquired customer contracts valued at GBP1.2 million (2019: GBP2.3 million).

   11            PROPERTY, PLANT AND EQUIPMENT 
 
                                                2020     2019 
                                                GBPm     GBPm 
 
 Opening net book value                        104.0     84.1 
 Additions                                      20.7     19.5 
 Business combinations                             -      4.3 
 Depreciation                                 (16.5)   (13.9) 
 Disposals                                     (1.0)    (0.3) 
 Transfers from right of use assets ( note 
  12)                                              -     10.3 
 Closing net book value                        107.2    104.0 
-------------------------------------------  -------  ------- 
 

The transfers from right of use assets represents the reclassification of the net book value of assets, transferred from right of use assets, where the lease expired in the year and the assets are now owned.

CAPITAL COMMITMENTS

Orders placed for future capital expenditure contracted but not provided for in the financial statements are shown below:

 
 
                                    2020     2019 
                                    GBPm     GBPm 
 
 Software                            0.1      0.8 
 Property, plant and equipment      10.3     10.3 
-------------------------------  -------  ------- 
 
   12            RIGHT OF USE ASSETS 
 
                                                    2020     2019 
                                                    GBPm     GBPm 
 
 Opening net book value                             39.0     48.0 
 Additions                                           5.2      6.5 
 Business combinations                                 -      0.7 
 Reassessment/modification of assets previously 
  recognised                                         1.9      1.2 
 Depreciation                                      (6.8)    (7.1) 
 Impairment losses                                 (0.1)        - 
 Disposals                                         (0.7)        - 
 Transfers to property, plant and equipment 
  (note 11)                                            -   (10.3) 
 Closing net book value                             38.5     39.0 
------------------------------------------------  ------  ------- 
 

The reassessment / modification of assets relates to rent increases and extensions to lease terms that have been agreed during the year to 31 December 2020 and 31 December 2019 for property leases that were in place at the start of the year.

During the current year, the Group announced the closure of the Newmarket site. As a result, the Group will utilise the break clause which was part of the original lease contract. The lease term was previously assumed to end in April 2027 but will instead end in April 2022. As such, the lease term has been revised resulting in a right of use asset disposal of GBP0.3 million. The remaining disposal of GBP0.4 million relates to a number of other asset disposals which are, individually, not material.

The transfers to property, plant and equipment represents the reclassification of the net book value of assets, to property, plant and equipment, where the lease expired in the year and the assets are now owned.

   13            TEXTILE RENTAL ITEMS 
 
 
                             2020     2019 
                             GBPm     GBPm 
 
 Opening net book value      56.8     56.4 
 Additions                   23.9     46.1 
 Business combinations          -      1.7 
 Depreciation              (42.2)   (45.1) 
 Impairment losses          (0.6)        - 
 Disposals                  (0.2)        - 
 Special charges            (2.1)    (2.3) 
 Closing net book value      35.6     56.8 
------------------------  -------  ------- 
 
   14         BORROWINGS 
 
                 2020    2019 
                 GBPm    GBPm 
 Current 
 Overdraft        1.2    11.2 
 Bank loans     (0.2)   (0.3) 
                  1.0    10.9 
-------------  ------  ------ 
 
 Non-current 
 Bank loans     (0.2)    84.7 
                (0.2)    84.7 
-------------  ------  ------ 
                  0.8    95.6 
-------------  ------  ------ 
 

At the 31 December 2020, borrowings were secured and drawn down under a committed facility dated 21 February 2014, as amended and restated from time to time. This amended facility comprised a GBP135.0 million rolling credit facility (including an overdraft) which runs to August 2023 and a GBP40.0 million rolling credit facility which runs to 22 May 2022 with the option for a one year extension.

Individual tranches are drawn down, in sterling, for periods of up to six months at LIBOR rates of interest prevailing at the time of drawdown, plus the applicable margin. The margin varies between 1.25% and 2.25%, but for the period to 31 March 2022 is fixed at 2.00%.

The secured bank loans are stated net of unamortised issue costs of GBP0.4 million (2019: GBP0.6 million) of which GBP0.2 million is included within current borrowings (2019: GBP0.3 million) and GBP0.2 million is included within non-current trade and other receivables (2019: GBP0.3 million within non-current borrowings) as there are no borrowings at the end of the period for the fees to be offset against.

As at 31 December 2020, the Group has in place the following hedging arrangements which have the effect of replacing LIBOR with fixed rates as follows:

-- for GBP15.0 million of borrowings, LIBOR is replaced with 1.070% from 30 January 2019 to 29 January 2021; and

-- for GBP15.0 million of borrowings, LIBOR is replaced with 1.144% from 30 January 2019 to 31 January 2022; and

-- for GBP15.0 million of borrowings, LIBOR is replaced with 0.805% from 8 January 2020 to 9 January 2023.

Following the equity placing in June 2020 which raised GBP82.7 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.

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.

The Group has two net overdraft facilities for GBP5.0 million and GBP3.0 million with two of its principal bankers (2019: GBP5.0 million and GBP3.0 million).

   15         LEASE LIABILITIES 
 
                                                      2020     2019 
                                                      GBPm     GBPm 
 
 Opening liabilities                                  40.4     44.6 
 New leases recognised                                 5.1      6.5 
 Business combinations                                   -      1.3 
 Reassessment / modification of leases previously 
  recognised                                           1.9      1.2 
 Lease payments                                      (7.8)   (15.0) 
 Disposals                                           (0.7)        - 
 Finance costs                                         1.7      1.8 
 Closing liabilities                                  40.6     40.4 
--------------------------------------------------  ------  ------- 
 
 
 Of which are: 
 Current lease liabilities         5.5    5.6 
 Non-current lease liabilities    35.1   34.8 
-------------------------------  -----  ----- 
 Closing liabilities              40.6   40.4 
-------------------------------  -----  ----- 
 

The reassessment/modification of leases relates to rent increases and extensions to lease terms that have been agreed during the year.

During the current year, the Group announced the closure of the Newmarket site. As a result, the Group will utilise the break clause which was part of the original lease contract. The lease term was previously assumed to end in April 2027 but will instead end in April 2022. As such the lease term has been revised resulting in a disposal of GBP0.3 million. The remaining disposal of GBP0.4 million relates to a number of other lease disposals which are, individually, not material.

   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.

As part of the Group's objective to reduce its overall pension deficit, deficit recovery payments of GBP1.9 million (2019: GBP1.9 million) were paid to the JGDBS. A net re-measurement and experience loss of GBP9.4 million has been recognised in the year to December 2020.

The gross post-employment benefit obligation and associated deferred income tax asset thereon is shown below:

 
                                              2020    2019 
                                              GBPm    GBPm 
 
 Gross post-employment benefit obligation     14.9     7.3 
 Deferred income tax asset thereon           (2.8)   (1.2) 
------------------------------------------  ------  ------ 
 Net liability                                12.1     6.1 
------------------------------------------  ------  ------ 
 

The reconciliation of the opening gross post-employment benefit obligation to the closing gross post-employment benefit obligation is shown below:

 
                                                       2020    2019 
                                                       GBPm    GBPm 
 
 Opening gross post-employment benefit obligation     (7.3)   (4.6) 
 Notional interest                                    (0.1)   (0.1) 
 Deficit recovery payments                              1.9     1.9 
 Utilisation of post-retirement healthcare 
  obligation                                              -       - 
 Re-measurement and experience losses                 (9.4)   (4.5) 
 Closing gross post-employment benefit obligation    (14.9)   (7.3) 
--------------------------------------------------  -------  ------ 
 

Within the Group's 2020 Interim Report and Accounts, disclosures were made in respect of the actuarial pension valuation as at 30 June 2020. On subsequent review of the support information provided for the purposes of the disclosure, an error was identified. The impact of the error was an overstatement of the fair value of scheme assets, as at 30 June 2020, by GBP10.3 million. As a result, the post-employment benefit obligations at 30 June 2020 should have been a GBP9.0 million liability, compared to the reported GBP1.3 million asset, and the deferred tax asset thereon should have been GBP1.7 million, compared to the reported deferred tax liability of GBP0.3 million. As a result, both retained earnings and net assets should have been GBP8.3 million lower. The error had no impact on the Consolidated Income Statement or the Consolidated Statement of Cash Flows.

   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                                At 31 
                                      December                 Non-cash    December 
   2020                                   2019   Cash Flow      Changes        2020 
                                          GBPm        GBPm         GBPm        GBPm 
 
 Debt due within one 
  year                                     0.3         0.1        (0.2)         0.2 
 Debt due after more 
  than one year                         (84.7)        85.1        (0.2)         0.2 
 Lease liabilities (See 
  note 15)                              (40.4)         6.1        (6.3)      (40.6) 
----------------------------   ---  ----------  ----------  -----------  ---------- 
 Total debt and lease 
  financing                            (124.8)        91.3        (6.7)      (40.2) 
 Cash and cash equivalents               (2.9)         9.5            -         6.6 
----------------------------   ---  ----------  ----------  -----------  ---------- 
 Net debt                              (127.7)       100.8        (6.7)      (33.6) 
----------------------------   ---  ----------  ----------  -----------  ---------- 
 
 
 
                                                             At 
                                  At 31     Adoption          1 
                               December      of IFRS    January               Non-cash   At 31 December 
                                   2018           16       2019   Cash Flow    Changes             2019 
 2019                              GBPm         GBPm       GBPm        GBPm       GBPm             GBPm 
 
 Debt due within one 
  year                              0.3            -        0.3         1.1      (1.1)              0.3 
 Debt due after more 
  than one year                  (86.6)            -     (86.6)         2.2      (0.3)           (84.7) 
 Finance leases                   (7.4)          7.4          -           -          -                - 
 Lease liabilities                    -       (44.6)     (44.6)        13.2      (9.0)           (40.4) 
---------------------------  ----------  -----------  ---------  ----------  ---------  --------------- 
 Total debt and lease 
  financing                      (93.7)       (37.2)    (130.9)        16.5     (10.4)          (124.8) 
 Cash and cash equivalents        (4.7)            -      (4.7)         1.8          -            (2.9) 
                                                      ---------  ----------  ---------  --------------- 
 Net debt                        (98.4)       (37.2)    (135.6)        18.3     (10.4)          (127.7) 
---------------------------  ----------  -----------  ---------  ----------  ---------  --------------- 
 

The cash and cash equivalents figures are comprised of the following balance sheet amounts:

 
                                                 2020     2019 
                                                 GBPm     GBPm 
 Cash (Current assets)                            7.8      8.3 
 Overdraft (Borrowings, Current liabilities)    (1.2)   (11.2) 
                                                  6.6    (2.9) 
---------------------------------------------  ------  ------- 
 

Lease liabilities are comprised of the following balance sheet amounts:

 
                                                      2020     2019 
                                                      GBPm     GBPm 
 
 Amounts due within one year (Lease liabilities, 
  Current liabilities)                               (5.5)    (5.6) 
 Amounts due after more than one year (Lease 
  liabilities, Non-current liabilities)             (35.1)   (34.8) 
                                                    (40.6)   (40.4) 
-------------------------------------------------  -------  ------- 
 
   18         RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT 
 
                                                        2020      2019 
                                                        GBPm      GBPm 
 
 Increase in cash in year                                9.5       1.8 
 Decrease in debt and lease financing                   91.3      16.5 
--------------------------------------------------  --------  -------- 
 Change in net debt resulting from cash flows          100.8      18.3 
 Debt acquired through business acquisitions               -     (2.4) 
 Leases previously recognised as operating leases 
  under IAS 17                                             -    (37.2) 
 Lease liabilities recognised during the period        (6.3)     (7.7) 
 Non-cash movement in unamortised bank facility 
  fees                                                 (0.4)     (0.3) 
 Movement in net debt                                   94.1    (29.3) 
 Opening net debt                                    (127.7)    (98.4) 
--------------------------------------------------  --------  -------- 
 Closing net debt                                     (33.6)   (127.7) 
--------------------------------------------------  --------  -------- 
 
   19         SHARE CAPITAL 
 
                                          2020                 2019 
 Issued and Fully Paid           Shares   GBPm        Shares   GBPm 
 Ordinary shares of 
  10p each: 
 - At start of year         369,760,824   37.0   367,574,210   36.8 
 - New shares issued         74,450,276    7.4     2,186,614    0.2 
 - At end of year           444,211,100   44.4   369,760,824   37.0 
-------------------------  ------------  -----  ------------  ----- 
 

Issue of Ordinary shares of 10p each

An analysis of the new shares issued in each year is shown below:

 
                                                  2020                  2019 
 Issued and Fully 
  Paid                              Shares         GBP      Shares       GBP 
 Ordinary shares of 
  10p each: 
                        note 
 - Approved LTIP          a              -           -     150,000    15,000 
                        note 
 - EBT                    b        300,000      30,000   1,655,000   165,000 
                        note 
 - SAYE                   c        235,088      23,509     381,614    38,161 
                        note 
 - Placing                d     73,915,188   7,391,519 
 New shares issued              74,450,276   7,445,028   2,186,614   218,161 
-----------------------------  -----------  ----------  ----------  -------- 
 

Note a: Nil (2019: 150,000) Ordinary shares were allotted in relation to employee share option exercises. The total nominal value received was GBPnil (2019: GBP15,000).

Note b: 300,000 (2019: 1,655,000) Ordinary shares were allotted to the EBT at nominal value to be used in relation to employee share option exercises. The total nominal value received was GBP30,000 (2019: GBP165,000). At the time of allotment, the EBT already held 12,468 (2019: 16,256) Ordinary shares of 10 pence each which, together with the 300,000 (2019: 1,655,000) newly allotted Ordinary shares of 10 pence each, were used to satisfy the exercise of 304,080 (2019: 1,654,934) LTIP options. In addition, the EBT sold no further shares (2019: 3,854 shares and retained the net proceeds).

Note c: 235,088 (2019: 381,614) SAYE Scheme options were exercised with a total nominal value of GBP23,509 (2019: GBP38,161).

Note d: During the year ended 31 December 2020, the Company placed 73.9 million Ordinary shares (the '2020 Placing') with existing and new institutional investors raising net proceeds of GBP82.7 million (gross proceeds of GBP85.0 million less costs of GBP2.3 million) of which GBP7.4 million was credited to share capital. The 2020 Placing shares represented approximately 19.99 per cent. of the Company's existing share capital. The 2020 Placing price of 115 pence per share was equal to a discount of 7 per cent. to the 10-day average closing mid-market price of 123.6 pence per share, and 2 per cent. to the 10-day volume weighted average price of 117.5 pence per ordinary share both ending on 28 May 2020, being the last practicable day prior to the publication of the announcement.

Whilst the Directors were cognisant to the effect of any non-pre-emptive issuance on retail shareholders, due to the size of the transaction, and the short timeframe required to secure additional liquidity as part of the Company's response to the extreme circumstances of the COVID-19 pandemic, the 2020 Placing was undertaken on a non-pre-emptive basis using a cash box structure. The Company was, therefore, able to rely on Section 612 of the Companies Act 2006, which provides relief from the requirements under Section 610 of the Companies Act 2006 to create a share premium account. As such, no share premium was recorded in relation to the 2020 Placing shares and, instead, the net proceeds in excess of the nominal value of the 2020 Placing shares was credited to retained earnings. Such retained earnings are considered to be distributable for the purposes of the Companies Act 2006.

For the avoidance of doubt, existing share awards were not normalised to negate the dilutive effect of the 2020 Placing.

The total proceeds received on allotment in respect of all of the above transactions were GBP82.9 million (2019: GBP0.6 million) and were credited as follows:

 
                         2019   2019 
                         GBPm   GBPm 
 
 Share capital            7.4    0.2 
 Share premium            0.2    0.4 
 Retained earnings       75.3      - 
                         82.9    0.6 
   -------------------  -----  ----- 
 
               20            CONTINGENT ASSETS 

During the year, the Group made claims against its insurance policy in relation to a fire and a flood at two Workwear processing plants. GBP4.4 million of claims have been recognised within the Consolidated Income Statement during the year. GBP2.5 million of this income has been recognised in exceptional items as it relates to capital items and GBP1.9 million is included within adjusted operating profit, offsetting against an equal value of associated business interruption costs.

Work is ongoing with the insurers such that the claims will likely be finalised in 2021. The insurance proceeds relating to capital items expected to be received during 2021 are between GBP7.0 million and GBP8.0 million. Further proceeds are likely to be received in relation to business interruption costs in line with expenditure as it is incurred.

   21            CONTINGENT LIABILITIES 

The Group operates from a number of sites across the UK. 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 GBP28.0 million to the Trustee ranking pari passu with up to GBP155.0 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 has 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 GBP0.2 million per annum, reduced pro rata as guarantees are released. Such liabilities are not expected to give rise to any significant loss.

As a condition of the sale of the Facilities Management division in August 2013, the Group has put in place indemnities, to the purchaser, in relation to any future amounts payable in respect of contingent consideration related to the Nickleby acquisition completed in February 2012. As set out in the 2012 Annual Report and Accounts the maximum amount payable under the terms of the indemnity could be up to GBP5.0 million. The Directors believe the risk of settlement at, or near, the maximum level to be remote.

   22            EVENTS AFTER THE REPORTING PERIOD 

There were no events occurring after the balance sheet date that require disclosing in accordance with IAS 10, 'Events after the reporting period'.

   23        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 at its February and August meetings, or more frequently should new matters arise. Throughout 2020, and other than as described below, the overall risk environment remained largely unchanged from that reported within the Group's 2019 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 Conditions                  *    Competition and Market Disruption 
 
 
   *    Failure of Strategy                  *    Recruitment, Retention and Motivation of Employees 
 
 
   *    Loss of a Processing Facility        *    Health and Safety 
 
 
   *    Cost Inflation                       *    Compliance and Fraud 
 
 
   *    Insufficient Processing Capacity     *    Information Systems and Technology 
 
 
   *    Customer Sales and Retention         *    Climate Change and Energy Costs 
 

Full details of the above risks, together with details on how the Board takes action to mitigate each risk, will be provided in our 2020 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.

COVID-19 Pandemic

Whilst we have not established a new principal risk for the COVID-19 pandemic, or for future potential pandemics, the Board has specifically considered how our principal risks and uncertainties have been impacted by it, as set out below.

 
                   Risk                         COVID-19 Impact 
 Health and        Health and safety            Increased amount of health and 
  Safety            in the workplace             safety legislation and guidelines 
                    is an extremely              introduced in response to COVID-19. 
                    important consideration 
                    for any employer.            The Group has followed all relevant 
                    Legislation is often         guidelines to ensure that its facilities 
                    complex and fast-changing    are COVID secure. While the potential 
                    and failure to ensure        risk has increased during the period 
                    our employees remain         due to COVID-19, the Directors' 
                    safe at work may             assessment is that this increase 
                    lead to serious              has been mitigated by the measures 
                    business interruption        implemented. 
                    and potential damage 
                    to reputation. 
                  ---------------------------  --------------------------------------------- 
 Economic          Our business could           The extraordinary and unprecedented 
  Conditions        be susceptible to            events arising in 2020 exasperated 
                    adverse changes              this risk as a result of the various 
                    in, inter alia,              lockdowns and restrictions imposed 
                    economic conditions          across the UK in response to COVID-19 
                    and customer spending        pandemic. HORECA customers may 
                    habits, which could          delay opening until they are confident 
                    impact our profitability     of demand for their own services 
                    and cash flow.               having returned to more normalised 
                                                 levels. 
 
                                                 In response to COVID-19, we have 
                                                 implemented action plans to protect 
                                                 the liquidity of the Group and 
                                                 to reduce the cost base. We continue 
                                                 to review our cost base for additional 
                                                 savings. 
                  ---------------------------  --------------------------------------------- 
 Loss of           The loss of a key            Historically, the loss of a processing 
  a                 processing facility          facility would most likely be as 
  Processing        could result in              a result of flooding or fire, however, 
  Facility          significant disruption       a site may now temporarily become 
                    to our business,             unavailable as a result of Government 
                    due to the high              guidance changes, on either a localised 
                    utilisation of plant         or national level, in response 
                    capacity.                    to COVID-19. Similarly, a localised 
                                                 outbreak of COVID-19 may also lead 
                                                 to the temporary closure of a site. 
 
                                                 A wide geographic spread of processing 
                                                 facilities mitigates the effect 
                                                 of a temporary loss of any single 
                                                 facility as our estate provides 
                                                 us the ability to relocate the 
                                                 processing of work. Detailed plans 
                                                 are in place for the processing 
                                                 to be relocated quickly and efficiently. 
                  ---------------------------  --------------------------------------------- 
 Customers         For our businesses           COVID-19 may lead to a higher number 
                    to grow organically,         of customer closures than we would 
                    we are reliant on            ordinarily experience and, as set 
                    securing and retaining       out above, customers may delay 
                    a diverse range              opening until they are confident 
                    of customers. A              of demand for their own services 
                    reliance on any              having returned to more normalised 
                    one particular customer      levels. 
                    or group of customers 
                    may present a risk           Our business model is structured 
                    to the future cash           so that we are not reliant on one 
                    flows of the Group           particular customer or group of 
                    should they not              customers and we have limited concentration 
                    be retained.                 of credit risk with regard to trade 
                                                 receivables given the diverse and 
                    Adverse economic             unrelated nature of the Group's 
                    conditions may lead          customer base. 
                    to an increased 
                    number of our customers      Given the diversity of our customer 
                    and clients being            base and the various industries 
                    unable to pay for            which we serve, it is generally 
                    existing or additional       possible to contain the impact 
                    products and services.       of these adverse conditions. Any 
                                                 adverse impact on cash flow could 
                                                 be mitigated in the short term 
                                                 by controls over capital expenditure 
                                                 and other discretionary spend. 
                  ---------------------------  --------------------------------------------- 
 Competition       We operate in a              Competitors may seek to aggressively 
                    highly competitive           price contracts in order to backfill 
                    marketplace. Aggressive      volume lost during the pandemic, 
                    pricing from our             particularly as they may not have 
                    competitors could            access to the same level of liquidity 
                    cause a reduction            as the Group. 
                    in our revenues 
                    and margins.                 The Group will continue to differentiate 
                                                 its proposition and focus on our 
                                                 points of strength, such as transparency 
                                                 of our pricing, flexibility in 
                                                 our cost base, quality and value 
                                                 of service and innovation. 
                  ---------------------------  --------------------------------------------- 
 Recruitment,      As a service orientated      The Group has established training, 
  Retention         Group, retaining             development, performance management 
  and Motivation    and motivating the           and reward programmes to retain, 
  of Employees      best people with             develop and motivate our people. 
                    the right skills,            The Group regularly reviews the 
                    at all levels of             adequacy and strength of its management 
                    the organisation,            teams to ensure that appropriate 
                    is key to the long-term      experience and training is given 
                    success of the Group.        such that there is not over reliance 
                    Short term disruption        on any one individual. 
                    could occur if a 
                    key member of our            As a consequence of COVID-19 and/or 
                    team was unavailable         the measures implemented by authorities 
                    at short notice,             to combat COVID-19, the Group may 
                    either on a temporary        experience material labour shortages, 
                    or permanent basis.          particularly in the short-term. 
                                                 By virtue of the size of the Group, 
                                                 we are able to reallocate work 
                                                 across our estate in the event 
                                                 of employee unavailability in a 
                                                 particular location. 
                  ---------------------------  --------------------------------------------- 
 
 
 Information   The digital world           The adoption of alternative working 
  Systems       creates many risks          practices during the pandemic may 
  and           for a business including    have increased our exposure to 
  Technology    technology failures,        external threats. 
                loss of confidential 
                data and damage             We seek to assess and manage the 
                to brand reputation.        effectiveness of our security infrastructure 
                                            and our ability to effectively 
                                            defend against current and future 
                                            cyber risks by using analysis tools 
                                            and experienced professionals to 
                                            evaluate and mitigate potential 
                                            impacts. Throughout the pandemic, 
                                            the Group has increased its focus 
                                            in this area as well as regularly 
                                            educating users of the increased 
                                            risk of cyber-attacks. 
              --------------------------  ---------------------------------------------- 
 

The Board will continue to closely monitor the situation over the coming period and will take any required action to maintain control over the impact.

BREXIT

The impact of the UK's decision to exit the European Union (Brexit) remains high on our agenda. The Board continues to view the potential impact of Brexit as an integral part of our principal risks rather than as a standalone risk.

We perceive the main risks as a potential delay on imports as well as an increase in costs and tariffs on those imports, however, in our risk mitigation planning we have sought to ensure that our key suppliers had the correct customs documentation in place for 1 January 2021. We also planned for increased stock holding of linen and garments within the UK. We are also aware that the recent changes to the UK's immigration system may have an impact on employee availability, particularly in the short-term, in certain regions where we operate. By virtue of the size of the Group, we are able to reallocate work across our estate in the event of employee unavailability in a particular location.

The Board will continue to monitor the potential impact and will take necessary mitigating actions as appropriate.

   24            STATEMENT OF DIRECTORS' RESPONSIBILITIES IN RESPECT OF THE FINANCIAL STATEMENTS 

The Annual Report and Accounts for the year ended 31 December 2020, which will be made available on the Group's website (www.jsg.com) on or before 26 March 2021, contains the following statement regarding responsibility for the Annual Report and financial statements:

"The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulation.

Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have prepared the Group and Parent Company financial statements in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union. Under company law, 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 Parent 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; 

-- state whether applicable international accounting standards in conformity with the requirements of the Companies Act 2006 and international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union have been followed, subject to any material departures disclosed and explained in the financial statements;

   --     make judgments and accounting estimates that are reasonable and prudent; and 

-- prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and Parent Company will continue in business.

The Directors are also responsible for safeguarding the assets of the Group and Parent Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group and Parent Company's transactions and disclose with reasonable accuracy at any time the financial position of the Group and Parent Company and enable them to ensure that the financial statements and the Directors' Remuneration Report comply with the Companies Act 2006.

The Directors are responsible for the maintenance and integrity of the Parent Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

The Directors consider that the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for Shareholders to assess the Group and Parent Company's position and performance, business model and strategy.

Directors' Confirmations

In the case of each Director in office at the date the Directors' Report is approved:

-- so far as the Director is aware, there is no relevant audit information of which the Group and Parent Company's auditors are unaware; and

-- they 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 Parent Company's auditors are aware of that information.

   25            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 Company's Annual Report will be made available on the Group's website (www.jsg.com) on or before 26 March 2021.

   26         APPROVAL 

The Preliminary Announcement was approved by the Board of Directors on 19 March 2021.

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END

FR UWRURAAUOAUR

(END) Dow Jones Newswires

March 19, 2021 03:00 ET (07:00 GMT)

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