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.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
RNS may use your IP address to confirm compliance with the terms
and conditions, to analyse how you engage with the information
contained in this communication, and to share such analysis on an
anonymised basis with others as part of our commercial services.
For further information about how RNS and the London Stock Exchange
use the personal data you provide us, please see our Privacy
Policy.
END
FR UWRURAAUOAUR
(END) Dow Jones Newswires
March 19, 2021 03:00 ET (07:00 GMT)
Johnson Service (LSE:JSG)
Gráfica de Acción Histórica
De Mar 2024 a Abr 2024
Johnson Service (LSE:JSG)
Gráfica de Acción Histórica
De Abr 2023 a Abr 2024
