AGM Statement and Updated Positive Energy Outlook

Johnson Service Group PLC

01 May 2024

 

1 May 2024

AIM: JSG

Johnson Service Group PLC

("JSG" or "the Group")

AGM Statement and Updated Positive Energy Outlook

JSG, a leading textile services provider in the UK and Republic of Ireland, will be holding its Annual General Meeting today and will make the following statement:

Current Trading

Revenue in the first three months of the year amounted to some £114 million (2023: £98 million).  Organic growth in the same period was 8.9% (HORECA: 13.5%; Workwear: 0.5%).

HORECA volumes have been in line with our expectations, in what is traditionally the quietest quarter of the year, whilst the more predictable volume pattern, compared to recent years, has allowed us to better utilise our resources.

Crawley, our new HORECA site, remains on budget and is expected to begin test processing in the next few weeks.  We are already using the site as a trunking depot and we anticipate that work will begin to transfer into Crawley from the end of June, thereby also creating additional capacity in the transferring sites.  As previously indicated, Crawley is expected to negatively impact adjusted operating profit by some £3.7 million in 2024 (2023: £1.0 million) with progress steadily towards a breakeven point during 2026 as the site matures.  The site remains on track to generate a return that comfortably exceeds the Group's weighted average cost of capital.

Our Celtic Linen business, acquired in August 2023, is performing as expected and we are pleased with how the business is integrating into the wider Group.

Workwear traded in line with our expectations during the first quarter, with encouraging sales momentum to both new and existing customers.

Updated Positive Energy Outlook

Energy costs have continued a general trend downwards since the end of 2023, although still remain volatile on a day-by-day basis.

As we have previously communicated, our policy is to forward fix the pricing of energy on a 'little and often' basis.  The weighted average price of our current fixed arrangements when combined with the current forward market rates for the remaining proportion of our anticipated energy usage would result in an improvement to current market consensus estimates for 2024 onwards.

Forward market rates, as at 29 April 2024, were as follows:

	Gas (pence per Therm)	Electricity (£ per MWh)
2024	77	71
2025	85	76
2026	77	71

Based upon the market rates above and the energy fixes currently in place, we estimate that the impact on our forecast energy cost when updated for these figures, together with the benefit of ongoing operational efficiencies, would result in a potential positive effect on adjusted operating profit in each of 2024, 2025 and 2026 of £3.0 million, £7.0 million and £9.0 million, respectively.  Applying the same uplift in adjusted operating profit to current market consensus would equate to a potential improvement in current market consensus adjusted operating margin of 50, 130 and 170 basis points, respectively.

Future energy market pricing will have minimal impact on 2024 but it is estimated that, based on the energy fixes in place currently, a 10 pence per Therm change in gas pricing and a £10 per MWh change in electricity pricing, either up or down, would impact adjusted operating profit in 2025 and 2026 by £0.6 million and £1.2 million, respectively.

Our policy of forward fixing energy pricing provides for visibility over future cost.  In the three-year period from 2021 to 2023, this policy secured, in aggregate, gas and electricity pricing at some £15.4 million lower than had no fixed pricing been in place.  We do note, however, that potentially for 2024, 2025 and 2026, this policy will result in a drag on margin.  We have estimated that the drag on adjusted operating profit, as already reflected in our forecast energy cost and, again, based on the current average market prices and sensitivities quoted above, would be as follows:

	£m	bps
2024	8.5	170
2025	3.0	60
2026	0.5	10

Balance Sheet

Bank debt increased from £61.7 million at December 2023 to £72.9 million at the end of March 2024 and is expected to peak mid-year, reflective of the timing of dividend payments and capital expenditure.  Bank debt at June 2024 is expected to be some £85.0 million before reducing to some £55.0 million by December 2024.  We continue to see exciting opportunities to deploy capital organically and have a good M&A pipeline.  Under our capital allocation policy, we keep our capital structure under review taking into account maintaining a strong balance sheet, continuing capital investment in our estate, accretive acquisitions, a progressive dividend policy and distributing any surplus cash to Shareholders.

Forthcoming Investor Activities

We are committed to clearly communicating our strategy and activities to our stakeholders, in order that they receive a balanced and complete view of our performance.

Accordingly, the Board intends to host a webcast of its interim results announcement in September of this year.

Furthermore, the Board currently anticipates that a London-based investor event will be held in the final quarter of 2024 to update the market on the future growth and financial plans for the Group.  Further details will be announced in due course.

Outlook

We remain encouraged by the medium-term prospects of the Group, in respect of both organic growth and expansion through our strategy of targeted acquisitions.

Based upon the market rates for energy referred to above, the energy fixed pricing currently in place and the benefit of our ongoing actions to increase operational efficiency, we expect to exit 2024 with strong progression towards previous levels of adjusted operating margin.

Furthermore, the Board is confident that, as energy costs stabilise at lower levels and Crawley builds volume and reaches its potential, combined with further operational efficiencies across the wider estate, divisional margins will continue to return towards those achieved in 2019, with an overall Group adjusted operating margin of at least 14.0% being achieved in 2026.

ENQUIRIES

Johnson Service Group PLC
Peter Egan, CEO
Yvonne Monaghan, CFO
Tel: [phone]
Investec Investment Banking (NOMAD)	Camarco (Financial PR)
David Flin	Ginny Pulbrook
Carlton Nelson	Rosie Driscoll
Virginia Bull	Letaba Rimell
Tel: [phone]	Tel: [phone]
	Email: [e-mail]

 

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