Preliminary Results

Johnson Service Group PLC

05 March 2024

5 March 2024

AIM: JSG

Johnson Service Group PLC

('JSG' or 'the Group')

Preliminary Results for the Year Ended 31 December 2023

Strong FY23 performance and well placed for continued growth in FY24

FINANCIAL PERFORMANCE

§ Total revenue increased by 20.6% to £465.3 million (2022: £385.7 million).

§ Organic revenue up 16.3% compared to 2022.

§ Adjusted EBITDA¹ of £131.5 million (2022: £104.9 million) with a margin of 28.3% (2022: 27.2%).

§ Adjusted operating profit¹ of £50.5 million (2022: £41.2 million).

§ Operating profit of £43.6 million (2022: £33.3 million).

§ Adjusted profit before taxation² of £44.5 million (2022: £38.2 million).

§ Profit before taxation of £37.6 million (2022: £30.3 million).

§ Full year dividend of 2.8 pence (2022: 2.4p).

§ The Board expects 2024 adjusted operating profit¹ to be in line with current market expectations.

FINANCING

§ Some £33.0 million invested through M&A activity in FY23 with a further £31.1 million of capital investment across the estate; balance sheet remains strong with capacity for further investment.

§ £10.0 million share buyback completed in H2; total of £29.8 million returned to Shareholders in 2023.

§ Bank facility increased to £120.0 million with tenure extended to August 2026.

OPERATIONAL HIGHLIGHTS

§ HORECA volumes continued to improve with increased number of locations being serviced.

§ Workwear customer retention levels were 91% whilst increased activity from prospective customers will have a positive impact into 2024.

§ Energy costs remained elevated but less volatile than 2022.

§ Price increases and other actions implemented throughout 2023 to help offset cost inflation.

§ Acquisition of Regency in February and Celtic Linen in August; both businesses trading well.

§ New HORECA site in Crawley remains on track to open in the second half of 2024.

§ New depot to be opened in April to enable further expansion into the London hotel market.

§ Second Sustainability Report published in October 2023 building on The Johnsons Way launched in February 2022.

§ Carbon, water and plastic reduction targets set for 2024.

Notes

1 'Adjusted EBITDA' refers to operating profit before amortisation of intangible assets (excluding software amortisation), goodwill impairment and exceptional items (defined as 'adjusted operating profit') plus the depreciation charge for property, plant and equipment, textile rental items and right of use assets, plus software amortisation.

2 Adjusted profit before taxation refers to adjusted operating profit less total finance costs.

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

"We are pleased to report a strong performance for the year, demonstrating the resilience of our business model against a backdrop of macroeconomic pressures, the strength of our relationships with our customers and business suppliers and the hard work of our employees.

During the year, significant investment has been made across the business with the improvement of existing sites, a new build to support future growth and the acquisitions of Regency and Celtic Linen. We remain focused on organic growth initiatives, optimising operational efficiencies and continuing to expand our geographical coverage through the successful execution of our strong M&A pipeline.

2024 has started positively, with a larger business operating in an expanded geography. Our scale, expertise, operational excellence and strong balance sheet will allow the business to capitalise on future opportunities.

Given the encouraging start to the year, the Board expects adjusted operating profit for the year to be in line with current market expectations."

SELL-SIDE ANALYSTS' MEETING

A presentation for sell-side analysts will be held today at 11am, 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 4992/4981 (on the day)
Tel: 01928 704 600 (thereafter)

Investec Investment Banking (NOMAD)	Camarco (Financial PR)
David Flin	Ginny Pulbrook
Carlton Nelson	Rosie Driscoll
Virginia Bull	Letaba Rimell
Tel: 020 7597 5970	Tel: 020 3757 4992/4981

CHIEF EXECUTIVE'S OPERATING REVIEW

BASIS OF PREPARATION

Throughout this statement, and consistent with prior years, a number of alternative performance measures ('APMs') are used to describe the Group's performance. APMs are not recognised under UK-adopted international accounting standards. Whilst the Board uses APMs to manage and assess the performance of the Group, and believes they are representative of ongoing trading, facilitate meaningful year on year comparisons and hence provide useful information to stakeholders, it is cognisant that they do have limitations and should not be regarded as a complete picture of the Group's financial performance. APMs, which include adjusted operating profit, adjusted profit before taxation, adjusted EBITDA, adjusted EPS, adjusted EPS excluding capital allowances super-deduction and adjusted net debt are defined within note 1 (Basis of Preparation) and are reconciled to statutory reporting measures in notes 2, 5, 8 and 17.

TRADING PERFORMANCE

Revenue

Total revenue for the year to 31 December 2023 increased by 20.6% to £465.3 million (2022: £385.7 million). Organic revenue increased 16.3% over 2022, reflecting both an increased volume in hospitality and price increases implemented throughout the year.

Financial Results

Our 2023 results reflect the increase in revenue offset by the impact of high inflationary pressures on our cost base, particularly in respect of energy and labour. Adjusted operating profit margin was 10.9%, reflecting energy and labour costs, as a percentage of revenue, remaining at an elevated level compared to 2019. As we continue to improve the recovery of these costs, through increasing volumes, efficiencies and price increases, the Board remains of the opinion that the operating margin of each individual Division can return towards the historic levels achieved in 2019.

Adjusted EBITDA increased by 25.4% to £131.5 million (2022: £104.9 million) giving a margin of 28.3% (2022: 27.2%). As expected, we saw this improve from the 26.8% achieved in the first half of the year. Adjusted operating profit was £50.5 million (2022: £41.2 million), an increase of 22.6%, whilst adjusted profit before taxation increased by 16.5% to £44.5 million (2022: £38.2 million).

The exceptional charge of £1.6 million was wholly in respect of costs in relation to business acquisition activity. The exceptional credit of £0.7 million in 2022 was in respect of a £1.5 million insurance receipt, relating to capital items lost in the Exeter fire in 2020, offset by a charge of £0.8 million relating to Exeter site clearance costs.

Statutory operating profit increased to £43.6 million (2022: £33.3 million) whilst statutory profit before taxation, after amortisation of intangible assets (excluding software amortisation) of £5.3 million (2022: £7.2 million), goodwill impairment of £nil (2022: £1.4 million) and the exceptional items referred to above, increased to £37.6 million (2022: £30.3 million).

Adjusted diluted earnings per share was 7.8 pence (2022: 8.0 pence), noting that the prior year materially benefitted from the capital allowances super-deduction. Excluding the benefit of the super-deduction, adjusted diluted earnings per share was 7.7 pence (2022: 7.2 pence).

Dividend Reflecting Confidence in the Future

An interim dividend of 0.9 pence (2022: 0.8 pence) per share was declared at the time of announcing our interim results. We are pleased to recommend a final dividend of 1.9 pence per share, taking the full year dividend to 2.8 pence (2022: 2.4 pence) per share. Dividend cover was 2.75 times, based on adjusted EPS excluding capital allowances super-deduction, and in line with our commitment to reduce cover to 2.5 times for full year 2024.

Acquisition of Regency and Celtic Linen

In line with our capital allocation policy, the Group has continued to seek out and acquire businesses which expand our geographic coverage and are earnings enhancing. During 2023, we completed the acquisition of Regency Laundry Limited ('Regency') and Harkglade Limited, along with its wholly owned subsidiaries Celtic Linen Limited and Millbrook Linen Limited ('Celtic Linen').

OPERATIONAL REVIEW

Our Businesses

The Group comprises of Textile Rental businesses which trade through a number of very well recognised brands, servicing the Workwear sector in Great Britain (GB) and the HORECA (Hotel, Restaurant and Catering) sector in GB and in Ireland, both North and South. The 'Johnsons Workwear' brand predominantly provides workwear rental and laundry services to corporates across all industry sectors in GB. Within HORECA in GB, 'Stalbridge' and 'London Linen' provide premium linen services to hotel, restaurant, hospitality and corporate event customers, 'Regency' provides bespoke linen to its four and five-star luxury hotel customers and 'Johnsons Hotel Linen', our high-volume linen business, primarily serves corporate independent and budget hotel customers. Also, within HORECA, our Ireland business, trading as 'Johnsons Belfast' in Northern Ireland and as 'Celtic Linen' in the Republic of Ireland, serves both budget and luxury hotel customers and additionally serves a number of healthcare customers.

The year has seen significant investment in the business, both in terms of improving existing sites and a new build to support future growth, together with expanding our range of services and geographical coverage through acquisition.

Energy

Energy costs (comprising gas, electricity and diesel) have remained volatile throughout the year and continue to be so, albeit to a lesser extent than experienced during 2022. Costs for 2023 represented 10.0% of revenue and were higher than both 2022 and 2019 (2022: 9.4%; 2019: 6.2%).

We have continued our policy of proactively fixing energy prices and, as at the end of February 2024, we had fixed 96% of our anticipated electricity usage and 91% of our anticipated gas usage for the first half of 2024 and 90% and 87%, respectively, for the second half of 2024. In addition, we have hedged 85% of our anticipated diesel requirement across 2024.

Looking further ahead, we will continue to lock in prices as opportunities allow. For 2025, we currently have, based on our anticipated usage, 62% electricity, 61% gas and 51% diesel at fixed prices, with reducing amounts into 2026.

Labour

Labour remains the biggest cost of our operations. In the year to 31 December 2023, labour as a percentage of revenue reduced to 44.0%, compared to 45.1% in the six months to 30 June 2023, 47.0% in the year to 31 December 2022 and 43.0% in the year to 31 December 2019. We remain encouraged by the improving efficiency as volumes have returned during 2023 but note that further improvements are challenged by increasing labour rates and a new site opening in 2024.

Workwear Division

Operating as Johnsons Workwear, we provide workwear rental and laundry services to customers throughout GB, ranging from small local businesses to the largest companies covering food related and other industrial sectors.

Revenue for the Workwear division increased by 5.9% to £142.6 million (2022: £134.6 million). Adjusted EBITDA was £48.6 million (2022: £46.6 million) with a margin of 34.1% (2022: 34.6%). Adjusted operating profit was £21.4 million (2022: £21.9 million), noting that the prior year did benefit from a £1.1 million credit relating to the finalisation of the Exeter insurance claim in respect of additional costs incurred in 2020 and 2021.

Throughout the course of 2023, our focus was directed towards fostering organic growth within the division. The strategy involved meticulous planning, innovative initiatives and strategic investment to ensure a sustainable pathway that aligns with our objectives. Benefitting from this strategy, the sales team is experiencing notable momentum which has resulted in increased activity with prospective customers. New sales during the year reached the highest level since COVID-19 impacted in 2020, with the wins in the final months of 2023 positively impacting into 2024. Our ability to assure the microbiological quality of processed textiles allowed the team to identify and capitalise on new market opportunities, successfully securing a significant contract within a market sector new to the division. Notably, we have continued to attract new customers to the benefits of a textile rental service, with new-to-rental customers representing 25% of our total new sales sold in the year.

Our sustained commitment to enhancing customer service has yielded tangible results, marked by an improvement in customer satisfaction survey results - the latest new customer survey reporting at 87.0% and existing customers reporting 86.2%. This positive shift can be attributed to a dedicated effort in actively listening and reacting to customer feedback, in addition to investment in training programmes to further equip our colleagues with the skills and knowledge needed to deliver exceptional customer service.

Despite economic uncertainties affecting a small percentage of our customer base, our customer retention remains strong at 91%, highlighting the effectiveness of our service teams' ability in renewing the contracts of existing customers.

Our commitment to advanced automation systems saw the successful installation of a state-of-the-art sortation system at our Hull and Perth sites, boosting our capacity and increasing efficiency. An extensive refurbishment project was undertaken across multiple sites, focusing on enhancing environmental aspects such as lighting, office space and employee welfare facilities. This project was complemented by our ongoing investment in machinery replacement programmes. Investment in our commercial fleet has also continued, with the replacement of forty-three vehicles during the year.

Our procurement department continues to work collaboratively with suppliers and has implemented measures to safeguard the availability and effectiveness of essential items, addressing challenges arising from supply chain disruptions. Notably, a significant milestone was reached during the year with the successful execution of our garment end-of-life programme which ensures that some 95% of garments are recycled with the remainder being repurposed.

HORECA Division

The total revenue for the HORECA division increased by 28.5% to £322.7 million (2022: £251.1 million). Volumes have continued to increase throughout the year and the division now incorporates the two acquisitions completed during 2023. On an organic basis, revenue increased by 21.9%, benefitting from strong customer retention, higher volumes and price increases implemented across the division in order to help offset the high level of cost inflation experienced. Following significant investment in the division, both in terms of improving existing sites and a new build to support future growth, we are well placed to expand further in this market which an independent study, commissioned by the Group, estimated the total addressable market for commercial laundry services to the HORECA industry in Great Britain to be £1.3 billion.

Adjusted EBITDA for the year increased by 42.4% to £89.7 million (2022: £63.0 million) with a margin of 27.8% (2022: 25.1%). The adjusted EBITDA margin in the second half of the year was 29.9%, compared to 25.2% in the first half. Adjusted operating profit was £36.0 million (2022: £24.1 million). Costs incurred in 2023 in respect of the new Crawley site, which is not yet operational, amounted to £1.0 million and will continue to have an impact on margin as volumes start to build from the second half of 2024.

The Hotel, Restaurant and Catering business, which includes Johnsons Stalbridge and London Linen, has continued to make good progress in 2023.

We have continued to expand and invest in our operating sites. Additional operating space was created in Grantham, Hayle, Shaftesbury and Wrexham through a combination of building improvements and extensions. New and replacement ironer lines came on stream in Glasgow, Grantham, London Linen, Shaftesbury and Wrexham, processing increased volumes, improving production efficiency and reducing energy use. Our use of recycled water has further increased with a now fully operational installation in our Hayle site adding to the original Shaftesbury installation. We continue to examine where else this technology can be best implemented going forward.

We have continued to replace plastic shrink wrap with paper banding whilst Hydrotreated Vegetable Oil, a fossil-free alternative to diesel, is being used to power a small number of our commercial vehicles. We also have six fully electric commercial vehicles operating in central London, where mileage and payloads allow, and all our processing locations have charging points to support our increasing use of electric vehicles in our company car fleet.

New sales remain strong and, as well as achieving above target independent sales, we have signed and installed some multi-site group business. These new wins can be attributed to our reputation for reliability, flexibility and great service delivery. Our service and quality levels have remained high, as evidenced in our annual customer survey results which reflected an improved score of 87.5%, with several of our sites achieving a world class score of over 90.0%.

Work on our new Crawley site is well underway and remains on course to open in the second half of 2024. This new location will support the ongoing successful growth of the business and will promote our commitment to energy and water usage efficiencies. Of the estimated £16.0 million total capital investment, some £6.9 million was spent in 2023.

Since its acquisition in February 2023, Regency continues to make good progress integrating into the wider JSG business and a £1.4 million capital investment project is underway in the Corsham facility to increase capacity and site resilience. Efficiency benefits already coming through in reduced drying times on heavier towelling items are complementing our commitment to improving energy utilisation.

A website rebrand and strong social media presence, further emphasising the quality offering of Regency, went live at the end of 2023. We are pleased to report very strong customer loyalty and retention, whilst also focusing on new sales growth through direct and digital marketing channels. There have been some key wins of luxury four and five-star hotels with over 450 rooms added since acquisition and the geographical reach is being extended east towards London.

Within Hotel Linen, additional new business, as well as organic growth within existing contracts, added to volume. Overall volumes during the second half of 2023 were in line with our expectations. A small number of customers have continued in their revised practices of changing both beds and towels less frequently and the number of independent and group hotels either partly or fully committing to Government contracts and providing accommodation for refugees was maintained at 2022 levels. We have addressed this change in practice by continuing to add rooms from both existing and new hotel groups.

A consistent service, with delivery on time and in full, was a key objective achieved in 2023. Our external Customer Satisfaction survey scored 84.9% with both our Birmingham and Reading sites achieving a world class score in excess of 90.0%. Our new Customer Service Visit App was successfully rolled out, enabling effective real-time feedback from customers. Key performance indicators of shortages and rejects were both below 1%. All new business was installed professionally and efficiently, with excellent feedback from customers.

Our local and national service teams continue to build strong relationships with all customers, with continued positive feedback regarding the online Linen Room and Customer Portal. Price negotiations have been challenging although customers have been understanding and supportive with regard to our cost increases, which is a reflection of our partnership approach.

We have continued to invest in our employee welfare facilities and targeted investment, with a focus on reducing energy and water usage and improving production efficiencies, across the estate through the installation of various items of equipment. A robotic towel folder has recently been installed in Bourne and early indications on its performance are encouraging. Dynamic production data capture has been installed in three sites, with the remaining to follow in the first half of 2024. Furthermore, processing capacity in our Bourne facility will be increased in the first quarter of 2024 with some £3.0 million invested in the site. Lead times for new vehicles improved during the year with some 60 vehicles delivered, including a new double decker trailer and tractor unit, with another two for delivery in the first half of 2024.

The overall business intelligence, data gathering, reporting and benchmarking continues to be developed with further plans for 2024. Improving the customer experience remains a key focus with all departments demonstrating excellent teamwork to achieve our objectives.

Following the acquisition of Celtic Linen in August 2023, the management of Johnsons Belfast has been integrated with that of Celtic Linen so that the service in Ireland, both North and South, achieves optimum levels. The process of integrating Celtic Linen into the wider JSG family is progressing well and the developments and changes have been welcomed by the team.

Post-acquisition trading levels at Celtic Linen were slightly ahead of our expectations, with the hospitality season performing well post the summer. This was also complemented by the installation of new business in November and December in the form of some 1,200 new rooms. Healthcare continued at expected levels and supply was fully met over the busy Christmas period, with hospitals running at full capacity. A maintained strong focus on customer service levels resulted in customer satisfaction ratings remaining consistently high and customer retention remains very strong.

The capital investment plan for Celtic Linen's Wexford site, which was underway at the time of acquisition, was completed in the final quarter of the year. The installation of the new equipment increases capacity and resilience of the site with the focus on best-in-class processing and energy efficiency. Additional investment in our Belfast site was largely completed during 2023 with additional improvements to the offices planned for 2024.

The previously announced 12% increase to the statutory minimum wage in the Republic of Ireland, effective 1 January 2024, coupled with other changes in employment costs has led to some challenges in what was already a very competitive labour market and we are working through the implications of this with both our customers, in terms of price increases, and internally reviewing our processes to ensure maximum efficiency.

SUSTAINABILITY

The Board, as a whole, has overall responsibility for environmental, social and governance matters and we recognise our duty to stakeholders to operate the business in an ethical and responsible manner. We remain committed to further developing our environmental and social responsibility agenda, recognising that it plays a major part in leading and influencing all of our people and operations.

In February 2022, we published 'The Johnsons Way', which sets out the Group's sustainability targets for 2030, and we have since published subsequent Sustainability Reports in February 2022 and October 2023. All documents can be found on our website at www.jsg.com.

We have continued to build on the foundations of our sustainability strategy with communication and involvement of employees at all levels being a key focus.

Further details of our achievements during 2023 and our targets for 2024, ongoing initiatives and actions for the future will be set out within the Group's 2023 Annual Report.

EMPLOYEES

We would like to welcome all new employees to the Group, particularly those that have joined us through acquisition. Our employees are the foundation of our business and are key in our ability to deliver customer service levels which exceed our customers' expectations. The teamwork, dedication and determination demonstrated in order to deliver a professional and on time service to our customers is a credit to each and every one of them. The Board would like to thank them for their support, hard work and significant contribution to the success of the business over the last 12 months.

Training, educating and developing our employees to their fullest potential remains a key focus of the Group. New training programmes have been implemented to enhance core skills and to provide an environment to support clear pathways for career advancement and succession planning.

Our commitment to employee engagement, fostering a positive work environment and improving employee wellbeing has continued throughout the year. Numerous initiatives have been rolled out during the year and, within the UK, we were delighted that the results from the latest Employee Engagement surveys showed a positive trend and an overall improvement on the previous year. A further survey will be undertaken in the final quarter of 2024 and will also be rolled out to our new colleagues at Celtic Linen and Regency.

OUTLOOK

Our scale, expertise and operational excellence mean that we are well placed to capitalise on opportunities and the Board remains confident about the growth opportunities available to the Group.

Whilst economic challenges and their impact on customer behaviour remain difficult to predict, we have a resilient business model to help mitigate these challenges and to address inflationary pressures which continue to impact the business. We have continued to fix a proportion of our future energy costs and improve the efficiency of our sites to help offset and stabilise our cost base and we are continuing to engage with our customers regarding the pricing of our services as we advance through 2024. New sales across the business are a focus, particularly in the regions where we are adding capacity.

We have started 2024 positively, with a larger business operating in an expanded geography. We are continuing to focus on expanding the Group through targeted investment in our existing sites together with identifying earnings enhancing acquisition opportunities. We have a strong balance sheet to support these plans.

Given the encouraging start to the year, the Board expects adjusted operating profit for the year to be in line with current market expectations.

Peter Egan

Chief Executive Officer

4 March 2024

FINANCIAL REVIEW

FINANCIAL RESULTS

Total revenue for the year to 31 December 2023 increased to £465.3 million (2022: £385.7 million).

Adjusted EBITDA was £131.5 million (2022: £104.9 million) giving a margin of 28.3% (2022: 27.2%) and, in-line with management expectations, improving from the 26.8% margin achieved in the first half of 2023.

Segmental revenue, adjusted EBITDA and adjusted EBITDA margin are as follows:

	2023			2022
	Revenue	Adjusted EBITDA	Margin	Revenue	Adjusted EBITDA	Margin
	£m	£m	%	£m	£m	%
Workwear	142.6	48.6	34.1	134.6	46.6	34.6
HORECA	322.7	89.7	27.8	251.1	63.0	25.1
Central Costs	-	(6.8)	-	-	(4.7)	-
Group	465.3	131.5	28.3	385.7	104.9	27.2

Statutory operating profit was £43.6 million (2022: £33.3 million) whilst adjusted operating profit was £50.5 million (2022: £41.2 million).

The total finance cost was £6.0 million (2022: £3.0 million) and included £3.4 million (2022: £1.6 million) of bank interest, £2.1 million (2022: £1.5 million) of interest in respect of IFRS 16 lease liabilities and £0.5 million (2022: £nil) in respect of notional interest on pension liabilities.

The exceptional charge of £1.6 million (2022: £0.7 million credit) are costs in relation to business acquisition activity. In 2022, the exceptional credit related to another receipt of £1.5 million of insurance proceeds, relating to the final receipt for capital items and property costs in relation to the 2020 Exeter site fire, offset by costs of £0.8 million in relation to Exeter site clearance costs.

Adjusted profit before taxation was £44.5 million (2022: £38.2 million). Statutory profit before taxation, after amortisation of intangible assets (excluding software amortisation) of £5.3 million (2022: £7.2 million) and exceptional items of £1.6 million (2022: £0.7 million credit), was £37.6 million (2022: £30.3 million).

Adjusted diluted earnings per share was 7.8 pence (2022: 8.0 pence). Excluding the benefit of the capital allowances super-deduction, which had limited impact in 2023, the adjusted diluted earnings per share was 7.7 pence (2022: 7.2 pence).

FINANCING

Bank debt at the end of the year was £61.7 million (December 2022: £13.7 million) reflecting the improved trading performance, continuing significant capital investment, the acquisition of Regency and Celtic Linen and a cash outflow of £29.9 million in respect of the share buyback programmes completed in the year. Including IFRS 16 liabilities, net debt at December 2023 was £104.9 million (December 2022: £48.0 million).

The Group remains well funded, with access to a committed revolving credit facility of £120.0 million which matures in August 2026. The terms of the facility provide an option to extend the term for up to a further year and an option to increase the facility by up to a further £15.0 million, both with bank consent. The facility is considerably in excess of our anticipated level of borrowings.

Bank covenants comprise gearing and interest cover tests. Gearing, for bank purposes, is calculated as adjusted EBITDA compared to total debt, including IFRS 16 liabilities. The agreed covenant is for the ratio to be not more than three times and the ratio at 31 December 2023 was 0.77 times. Interest cover compares adjusted operating profit to total interest cost, with a minimum covenant ratio of four times. Our current scenario planning provides significant headroom against the covenants.

Interest payable on bank borrowings is based upon SONIA or, in the case of Euro denominated borrowings, EURIBOR, plus a margin linked to our gearing covenant and will range from 1.45% to 2.25%. The current margin is 1.45%.

TAXATION

The tax rate on the adjusted profit before taxation was 25.8% (2022: 6.8%). The rate is above the headline corporation tax rate in the UK of 23.5% due to the effect of expenses not deductible for taxation and short-term timing differences, offset by the tax rate in ROI being 12.5%. The rate is materially higher than the rate in 2022 which was significantly impacted by the capital allowances super-deduction of 130% of capital spend. The super-deduction allowance, which resulted in a permanent reduction in the tax charge whilst in operation, ended on 31 March 2023 and had little impact on the 2023 tax rate.

Corporation tax paid in the year amounted to £1.6 million compared to a refund of £3.5 million in 2022 which was in respect of prior year tax losses. The announcement of full expensing rules for UK capital expenditure from 1 April 2023 will reduce the cash tax payable by the Group below the tax charge whilst those rules remain in place.

DIVIDEND

The Board declared an interim dividend of 0.9 pence (2022: 0.8 pence) per share in September 2023. The proposed final dividend of 1.9 pence per share brings the total dividend for 2023 to 2.8 pence (2022: 2.4 pence) per share.

The final dividend, if approved by Shareholders, will be paid on 10 May 2024 to Shareholders on the register at close of business on 12 April 2024. The ex-dividend date is 11 April 2024. Dividend cover, based on adjusted EPS excluding capital allowances super-deduction, was 2.75 times and it remains the Board's current intention to reduce cover to 2.5 times by financial year 2024.

CASH FLOW

Free cash flow in the year (calculated as net cash generated from operating activities, less net spend on textile rental items, less the capital element of leases) was £55.2 million compared to £39.1 million in 2022. Of this, we invested £31.1 million (2022: £22.4 million) in the purchase of property, plant and equipment and software, as we proactively invest in the business to increase capacity and efficiency across the estate. Offsetting this spend in 2022 was £1.5 million received as part of the insurance claim in respect of capital items.

Free cash flow in 2023 reflected a more normalised level of net working capital with an outflow of £0.3 million (2022: £8.2 million).

INVESTMENT IN TEXTILE RENTAL ITEMS

Spend on textile rental items amounted to £61.9 million (2022: £52.5 million). The increase reflects the growth of the Group, both organically and through acquisition. We have long term relationships with our garment and linen suppliers and we continue to work collaboratively to ensure continuity of supply of quality products.

CAPITAL INVESTMENT AND ACQUISITIONS

We have continued to invest in plant and equipment, spending £31.1 million in the year. The spend includes £6.9 million in respect of the new Crawley site, with a further £9.1 million expected to be invested in the site in 2024. We are continuing with our programme of investing in our sites to expand capacity, increase water and energy efficiencies and improve employee welfare facilities.

The £5.75 million acquisition of Regency in February 2023 was a further step in expanding our range of services to four and five-star luxury hotel customers. Investment of some £1.4 million is underway in the Regency site in Corsham to expand its processing capacity and increase resilience.

In August 2023 we acquired the Celtic Linen business in the Republic of Ireland for a consideration of €31.5 million (£27.1 million). Capital investment at Wexford, which was ongoing at the time of acquisition, and had been initially recognised as a lease liability of £1.1 million by Celtic Linen, was paid in September 2023.

DEFINED BENEFIT PENSION SCHEME LIABILITIES

On an IAS 19 basis, the Scheme deficit as at 31 December 2023 was £nil (2022: £7.1 million deficit (net of deferred taxation)). Scheme assets had reduced by £2.8 million, to £145.4 million, after paying out benefits of £10.3 million during the year whilst Scheme liabilities had reduced by £12.2 million to £145.4 million. The improved position reflects the results of the triennial actuarial valuation of the Scheme, as at 30 September 2022, and the payment of deficit recovery contributions offset, to a lesser extent, by adverse inflation experience and lower than expected asset returns over the period. As a result of the deficit being nil, the estimated net notional interest cost in 2024 will be £nil (2023: £0.5 million).

The triennial actuarial valuation of the Scheme, which is prepared on a "technical provisions" basis, was completed during the year and showed that the Scheme had a surplus of £6.3 million at that time. In order to reduce the value of risk of the Scheme, a 75% target for the interest rate and inflation hedge ratios remains in place and is subject to ongoing review. The Scheme's asset allocation remains under constant review to ensure it aligns with the medium-term objective of a buy-out of Scheme liabilities.

In view of the Scheme surplus shown at the valuation date, we have agreed with the Trustee that the deficit recovery payment of £1.9 million per annum, which was being paid in equal monthly instalments, ceased from the end of October 2023 and will be reviewed again at the time of the valuation as at 30 September 2025.

RETURN ON CAPITAL EMPLOYED (ROCE)

ROCE, calculated as rolling 12-month adjusted operating profit divided by the average of opening and closing Shareholders' equity, net debt and post-employment benefit obligations, increased to 13.9% at 31 December 2023 (2022: 12.2%).

CAPITAL STRUCTURE AND SHARE BUYBACK PROGRAMME

The Group maintains a strong Balance Sheet. The reduction in net assets to £279.1 million (2022: £284.6 million) is reflective of the share buy-back programmes completed during 2023 which reduced Retained Earnings by £29.8 million

The Group's medium to long-term intention is to return the capital structure such that we target leverage of 1.0x - 1.5x, other than for short-term specific exceptions. Under this framework, our capital allocation policy remains unchanged and will continue to take into account the following criteria as part of an ongoing 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.

The Group has undertaken two recent share buyback programmes which, in the period September 2022 to November 2023, utilised cash of £35.5 million, of which £29.9 million was utilised in the twelve months ended 31 December 2023.

GOING CONCERN

After considering the monthly cash flow projections, the stress tests and the facilities available to the Group and Company, the Directors concluded that there was 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 period to 30 June 2025. Accordingly, and having reassessed the principal risks and uncertainties, the Directors considered that it was appropriate to adopt the going concern basis in preparing the Group and Company financial statements.

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 profit/(loss) and adjusted diluted earnings/(loss) per share. In addition, the adjusted diluted earnings per share excluding the impact of the capital allowances super-deduction also formed part of the assessment. ROCE is also used as part of the assessment of performance of the Group. Non-financial KPIs, as referred to within the Chief Executive's Operating Review, include our employee and customer survey results and customer retention statistics.

SUMMARY

The focus of the Group continues to be to expand our Textile Services business through targeted capital investment, to allow organic volume growth, and through acquisition.

Yvonne Monaghan

Chief Financial Officer

4 March 2024

CONSOLIDATED INCOME STATEMENT

		Year ended 31 December 2023	Year ended 31 December 2022
	Note	£m	£m


Revenue	2	465.3	385.7

Impairment loss on trade receivables		(1.7)	(0.9)
All other costs		(420.0)	(351.5)
Operating profit	2	43.6	33.3

Operating profit before amortisation of intangible assets (excluding software amortisation), goodwill impairment and exceptional items	2	50.5	41.2

Amortisation of intangible assets (excluding software amortisation)		(5.3)	(7.2)

Goodwill impairment		-	(1.4)

Exceptional items	3	(1.6)	0.7
Operating profit	2	43.6	33.3

Finance cost	4	(6.0)	(3.0)
Profit before taxation		37.6	30.3
Taxation charge	6	(10.4)	(1.5)
Profit for the year from continuing operations		27.2	28.8
Profit for the year from discontinued operations		0.1	0.2
Profit for the year attributable to equity holders		27.3	29.0

EARNINGS PER SHARE	8

Basic earnings per share
- From continuing operations		6.4p	6.5p
- From discontinued operations		-	-
From total operations		6.4p	6.5p

Diluted earnings per share
- From continuing operations		6.4p	6.5p
- From discontinued operations		-	-
From total operations		6.4p	6.5p

See note 8 for further details of adjusted earnings per share and adjusted diluted earnings per share.

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

		Year ended 31 December 2023			Year ended 31 December 2022
	Note		£m	£m
Profit for the year			27.3	29.0
Items that will not be subsequently reclassified to profit or loss
Remeasurement and experience gains / (losses) on post-employment benefit obligations	18		8.8	(10.0)
Taxation in respect of remeasurement and experience gains / losses			(2.2)	2.5
Deferred taxation rate change in respect of remeasurement and experience losses			-	0.1
Items that may be subsequently reclassified to profit or loss
Cash flow hedges (net of taxation) - fair value (losses) / gains			(0.5)	1.4
- transfers to administrative expenses			0.4	(2.2)
Net loss on hedge of a net investment			(0.3)	-
Exchange differences on translation of foreign operations			0.3	-
Total other comprehensive income / (loss) for the year			6.5	(8.2)
Total comprehensive income for the year			33.8	20.8

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY

	Share Capital		Share Premium	Merger Reserve	Capital Redemption Reserve	Hedge Reserve	Retained Earnings	Total Equity
	£m		£m	£m	£m	£m	£m	£m

Balance at 31 December 2021		44.5	16.8	1.6	0.6	0.3	208.6	272.4

Profit for the year		-	-	-	-	-	29.0	29.0
Other comprehensive income		-	-	-	-	(0.8)	(7.4)	(8.2)
Total comprehensive (loss) / income for the year		-	-	-	-	(0.8)	21.6	20.8

Share options (value of employee services)		-	-	-	-	-	0.8	0.8
Share buybacks		(0.6)	-	-	0.6	-	(5.7)	(5.7)
Deferred tax on share options		-	-	-	-	-	(0.2)	(0.2)
Dividend paid		-	-	-	-	-	(3.5)	(3.5)
Transactions with Shareholders recognised directly in Shareholders' equity		(0.6)	-	-	0.6	-	(8.6)	(8.6)

Balance at 31 December 2022		43.9	16.8	1.6	1.2	(0.5)	221.6	284.6

Profit for the year		-	-	-	-	-	27.3	27.3
Other comprehensive income		-	-	-	-	(0.1)	6.6	6.5
Total comprehensive (loss) / income for the year		-	-	-	-	(0.1)	33.9	33.8
Share options (value of employee services)		-	-	-	-	-	1.0	1.0
Share buybacks		(2.5)	-	-	2.5	-	(29.8)	(29.8)
Deferred tax on share options		-	-	-	-	-	0.1	0.1
Dividend paid		-	-	-	-	-	(10.6)	(10.6)
Transactions with Shareholders recognised directly in Shareholders' equity		(2.5)	-	-	2.5	-	(39.3)	(39.3)

Balance at 31 December 2023		41.4	16.8	1.6	3.7	(0.6)	216.2	279.1

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 2023 the EBT held 9,024 shares (2022: 9,024). Additionally, at 31 December 2022 and pursuant to the then ongoing share buyback programme, the Group also held 116,934 treasury shares. See note 19 for further details.

CONSOLIDATED BALANCE SHEET

		As at 31 December 2023	As at 31 December 2022
	Note	£m	£m
Assets
Non-current assets
Goodwill	9	144.4	133.8
Intangible assets	10	19.1	10.9
Property, plant and equipment	11	134.5	119.6
Right of use assets	12	40.0	31.7
Textile rental items	13	71.9	63.8
Trade and other receivables		0.4	0.3
		410.3	360.1

Current assets
Inventories		1.9	1.8
Trade and other receivables		83.3	61.0
Reimbursement assets		3.9	4.5
Cash and cash equivalents		9.6	6.1
		98.7	73.4

Liabilities
Current liabilities
Trade and other payables		92.8	75.7
Borrowings	14	8.3	5.1
Current income tax liabilities		0.5	0.2
Lease liabilities	15	5.5	5.1
Derivative financial liabilities		0.6	0.4
Provisions		4.9	5.1
		112.6	91.6

Non-current liabilities
Post-employment benefit obligations	16	0.3	10.2
Deferred income tax liabilities		15.0	1.8
Trade and other payables		0.3	0.3
Borrowings	14	63.0	14.7
Lease liabilities	15	37.7	29.2
Derivative financial liabilities		0.2	0.3
Provisions		0.8	0.8
		117.3	57.3
Net assets		279.1	284.6

Equity
Capital and reserves attributable to the company's shareholders
Share capital	19	41.4	43.9
Share premium		16.8	16.8
Merger reserve		1.6	1.6
Capital redemption reserve		3.7	1.2
Hedge reserve		(0.6)	(0.5)
Retained earnings		216.2	221.6
Total equity		279.1	284.6

The notes on pages 20 to 37 form an integral part of these condensed consolidated financial statements. The condensed consolidated financial statements on pages 16 to 37 were approved by the Board of Directors on 4 March 2024 and signed on its behalf by:

Yvonne Monaghan

Chief Financial Officer

CONSOLIDATED STATEMENT OF CASH FLOWS

	Note	Year ended 31 December 2023 £m	Year ended 31 December 2022 £m
Cash flows from operating activities
Profit for the year		27.3	29.0
Adjustments for:
Taxation charge / (credit) - continuing	6	10.4	1.5
Total finance cost	4	6.0	3.0
Depreciation		80.6	63.5
Amortisation	10	5.7	7.4
Goodwill impairment	9	-	1.4
(Profit) / loss on disposal of property, plant and equipment		(0.1)	(0.2)
Decrease in inventories		0.4	0.4
Increase in trade and other receivables		(10.2)	(12.9)
Increase in trade and other payables		9.5	4.3
Deficit recovery payments in respect of post-employment benefit obligations		(1.6)	(1.9)
Share-based payments		1.0	0.8
Decrease in provisions		(0.3)	(0.1)
Commodity swaps not qualifying as hedges		-	(0.1)
Income re insurance claims		-	(1.5)
Cash generated from operations		128.7	94.6
Interest paid		(5.7)	(3.6)
Taxation paid		(1.6)	3.5
Net cash generated from operating activities		121.4	94.5

Cash flows from investing activities
Acquisition of businesses (net of cash acquired)	20	(29.7)	-
Purchase of other intangible assets		-	(1.3)
Purchase of property, plant and equipment		(31.1)	(22.1)
Income re insurance claims		-	1.5
Purchase of software		-	(0.3)
Proceeds from sale of property, plant and equipment		0.2	0.4
Purchase of textile rental items		(61.9)	(52.5)
Proceeds received in respect of special charges	13	3.3	2.7
Net cash used in investing activities		(119.2)	(71.6)

Cash flows from financing activities
Proceeds from borrowings		100.6	48.0
Repayment of borrowings		(54.6)	(51.0)
Capital element of leases		(7.6)	(5.6)
Share buyback	19	(29.9)	(5.6)
Dividends paid to company shareholders	7	(10.6)	(3.5)
Net cash used in financing activities		(2.1)	(17.7)

Net increase in cash and cash equivalents		0.1	5.2
Cash and cash equivalents at beginning of year		0.8	(4.4)
Cash and cash equivalents at end of year	17	0.9	0.8

Cash and cash equivalents comprise:

Cash	9.6	6.1
Overdraft	(8.7)	(5.3)
Cash and cash equivalents at end of year	0.9	(0.8)

NOTES TO THE PRELIMINARY ANNOUNCEMENT

1 BASIS OF PREPARATION

Basis of Preparation

Johnson Service Group PLC (the 'Company') and its subsidiaries (together 'the Group') provide textile rental and related services across the UK and Republic of Ireland.

The Company is incorporated and domiciled in the UK, its registered number is 523335 and the address of its registered office is Johnson House, Abbots Park, Monks Way, Preston Brook, Cheshire, WA7 3GH. The Company is a public limited company and has its primary listing on the AIM division of the London Stock Exchange.

The financial information contained within this Preliminary Announcement has been prepared on a going concern basis in accordance with UK-adopted international accounting standards.

The financial information has been prepared using accounting policies consistent with those set out in the 2022 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 2023 or 31 December 2022 within the meaning of Section 434 of the Companies Act 2006 but is derived from those accounts.

Statutory accounts for 2022 have been delivered to the Registrar of Companies and those for 2023 will be delivered as soon as practicable, but not later than 30 April 2024. 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

After careful assessment, the Directors have adopted the going concern basis in preparing these financial statements. The process and key judgments in coming to this conclusion are set out below.

The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the Chief Executive's Operating Review. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are described in the Financial Review.

Going Concern Assessment

Cash Flows, Covenants and Stress Testing

For the purposes of the going concern assessment, the Directors have prepared monthly cash flow projections for the period to 30 June 2025 (the assessment period). The Directors consider this to be a reasonable period for the going concern assessment as it enables them to consider the potential impact of macroeconomic and geopolitical factors over an extended period. The cash flow projections show that the Group has significant headroom against its committed facilities and can meet its financial covenant obligations.

The Group has also performed a reverse stress test against the base monthly cash flow projections referred to above in order to determine the performance level that would result in a reduction in headroom against its committed facilities to nil or a breach of its covenants. The interest cover covenant would be breached in the event that adjusted operating profit reduced to approximately 70% of 2023 levels. The Directors do not consider this scenario to be plausible.

As a further stress test, the Group considered the impact of increasing interest rates. The Directors do not consider the magnitude of the increase in interest rates that would be required in order for a covenant to be breached to be plausible.

The Group has also considered the impact of a more modest increase in interest rates alongside the reduction in adjusted operating profit to cause a breach in the interest cover covenant. Again, the Directors do not consider such a scenario to be plausible.

Each of the stress tests assume no mitigating actions are taken. Mitigating actions available to the Group, should they be required, include reductions in discretionary capital expenditure and ceasing dividend payments.

Liquidity

The Group has access to a committed Revolving Credit Facility of £120.0 million (the 'Facility') which matures in August 2026. The terms of the Facility provide an option to extend the term for a further year and an option to increase the Facility by up to a further £15.0 million, both with bank consent. The Facility is considerably in excess of our anticipated borrowings and provides ample liquidity for current commitments.

Going Concern Statement

After considering the monthly cash flow projections, the stress tests 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 period to 30 June 2025. Accordingly, 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.

1 BASIS OF PREPARATION (continued)

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.

Alternative Performance Measures (APMs)

Throughout this Preliminary Announcement, and consistent with prior years, we refer to a number of APMs. APMs are used by the Group to provide further clarity and transparency of the Group's financial performance. The APMs are used internally by management to monitor business performance, budgeting and forecasting, and for determining Directors' remuneration and that of other management throughout the business. The APMs, which are not recognised under UK-adopted international accounting standards, are:

§ 'adjusted operating profit', which refers to operating profit before amortisation of intangible assets (excluding software amortisation), goodwill impairment and exceptional items;

§ 'adjusted profit before taxation', which refers to adjusted operating profit less total finance cost;

§ 'adjusted EBITDA', which refers to adjusted operating profit plus the depreciation charge for property, plant and equipment, textile rental items and right of use assets, plus software amortisation;

§ 'adjusted EPS', which refers to EPS calculated based on adjusted profit after taxation;

§ 'adjusted EPS excluding capital allowances super-deduction', an additional measure introduced for 2023 and 2022 which amends the 'adjusted EPS' to exclude the short-term benefit of the capital allowance super-deduction; and

§ 'adjusted net debt', which refers to net debt excluding IFRS 16 lease liabilities.

The Board considers that the above APMs, all of which exclude the effects of non-recurring items or non-operating events, provide useful information for stakeholders on the underlying trends and performance of the Group and facilitate meaningful year on year comparisons.

Limitations of APMs

The Board is cognisant that APMs do have limitations and should not be regarded as a complete picture of the Group's financial performance. Limitations of APMs may include, inter alia:

§ similarly named measures may not be comparable across companies;

§ profit-related APMs may exclude significant, sometimes recurring, business transactions (e.g. restructuring charges and acquisition-related costs) that impact financial performance and cash flows; and

§ adjusted operating profit, adjusted profit before taxation, adjusted EBITDA, adjusted EPS and adjusted EPS excluding capital allowances super-deduction all exclude the amortisation of intangibles acquired in business combinations, but do not similarly exclude the related revenue.

Reconciliation of APMs to Statutory Performance Measures

Reconciliations between the above APMs and statutory performance measures are reconciled within this Preliminary Announcement as follows:

§ Adjusted operating profit - note 2

§ Adjusted profit before taxation - note 5

§ Adjusted EBITDA - note 5

§ Adjusted EPS - note 8

§ Adjusted EPS excluding capital allowances super-deduction - note 8

§ Adjusted net debt - note 17

2 SEGMENT ANALYSIS

Segment information is presented based on the Group's management and internal reporting structure as at 31 December 2023.

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

For reporting purposes, the CODM 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 (for example, where 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 CODM deems 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, Restaurant and Catering ('HORECA'): comprising of our Stalbridge, Hotel Linen, and following the acquisitions completed in the year, Regency and Ireland businesses (to include Celtic Linen and Lilliput), each of which are a separate operating segment.

The CODM's rationale for aggregating the Stalbridge, Hotel Linen, Regency and Ireland 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 CODM 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 CODM. 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 CODM is measured in a manner consistent with that in the financial statements. Segment assets exclude deferred income tax assets, derivative financial assets, current income tax 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 23 to 24.

2 SEGMENT ANALYSIS (continued)

Year ended 31 December 2023	Workwear	HORECA	All Other Segments	Total
	£m	£m	£m	£m
Revenue
Rendering of services	138.9	322.6	-	461.5
Sale of goods	3.7	0.1	-	3.8
Total revenue	142.6	322.7	-	465.3

Result
Operating profit / (loss) before amortisation of intangible assets (excluding software amortisation) and exceptional items	21.4	36.0	(6.9)	50.5
Amortisation of intangible assets (excluding software amortisation)	(0.4)	(4.9)	-	(5.3)
Exceptional items	-	(1.6)	-	(1.6)
Operating profit / (loss)	21.0	29.5	(6.9)	43.6
Total finance cost				(6.0)
Profit before taxation				37.6
Taxation charge				(10.4)
Profit for the year from continuing operations				27.2
Profit for the year from discontinued operations				0.1
Profit for the year attributable to equity holders				27.3

All of the above revenues are generated in the United Kingdom, with the exception of £11.0 million generated within the Republic of Ireland.

	Workwear	HORECA	All Other Segments	Total
	£m	£m	£m	£m
Balance sheet information
Segment assets	152.1	345.9	1.4	499.4
Unallocated assets: Cash and cash equivalents				9.6
Total assets				509.0

Segment liabilities	(43.5)	(95.2)	(3.3)	(142.0)
Unallocated liabilities: Bank borrowings				(71.3)
Derivative financial liabilities				(0.8)
Post-employment benefit obligations				(0.3)
Current income tax liabilities				(0.5)
Deferred income tax liabilities				(15.0)
Total liabilities				(229.9)

Other information
Non-current asset additions
- Property, plant and equipment	6.1	20.8	-	26.9
- Right of use assets (including reassessment / modification)	2.7	10.6	0.1	13.4
- Textile rental items	23.5	37.5	-	61.0
Depreciation, impairment and amortisation expense
- Property, plant and equipment	5.9	15.1	-	21.0
- Right of use assets depreciation	2.5	4.0	0.1	6.6
- Textile rental items depreciation	18.5	34.5	-	53.0
- Capitalised software	0.3	0.1	-	0.4
- Customer contracts	0.4	4.9	-	5.3

With the exception of non-current assets of £11.3 million (2022: £nil) which were located in the Republic of Ireland, all non-current assets of the Group reside in the Group's country of domicile, the United Kingdom

2 SEGMENT ANALYSIS (continued)

Year ended 31 December 2022	Workwear	HORECA	All Other Segments	Total
	£m	£m	£m	£m
Revenue
Rendering of services	131.0	251.0	-	382.0
Sale of goods	3.6	0.1	-	3.7
Total revenue	134.6	251.1	-	385.7

Result
Operating profit / (loss) before amortisation of intangible assets (excluding software amortisation), goodwill impairment and exceptional items	21.9	24.1	(4.8)	41.2
Amortisation of intangible assets (excluding software amortisation)	(0.4)	(6.8)	-	(7.2)
Goodwill impairment	-	(1.4)	-	(1.4)
Exceptional items	0.9	-	(0.2)	0.7
Operating profit / (loss)	22.4	15.9	(5.0)	33.3
Total finance cost				(3.0)
Profit before taxation				30.3
Taxation charge				(1.5)
Profit for the year from continuing operations				28.8
Profit for the year from discontinued operations				0.2
Profit for the year attributable to equity holders				29.0

All of the above revenues are generated in the United Kingdom, with the exception of £0.5 million generated within the Republic of Ireland.

	Workwear	HORECA	All Other Segments	Total
	£m	£m	£m	£m
Balance sheet information
Segment assets	144.7	281.8	0.9	427.4
Unallocated assets: Cash and cash equivalents				6.1
Total assets				433.5

Segment liabilities	(37.4)	(76.3)	(2.5)	(116.2)
Unallocated liabilities: Bank borrowings				(19.8)
Derivative financial liabilities				(0.7)
Post-employment benefit obligations				(10.2)
Current income tax liabilities				(0.2)
Deferred income tax liabilities				(1.8)
Total liabilities				(148.9)

Other information
Non-current asset additions
- Property, plant and equipment	6.3	18.5	-	24.8
- Right of use assets (including reassessment / modifications)	0.8	1.3	-	2.1
- Textile rental items	21.5	35.9	-	57.4
- Capitalised software	0.2	0.1	-	0.3
- Customer contracts	1.3	-	-	1.3
Depreciation, impairment and amortisation expense
- Property, plant and equipment	5.8	12.5	-	18.3
- Right of use assets depreciation	2.0	3.8	0.1	5.9
- Textile rental items depreciation	16.7	22.6	-	39.3
- Capitalised software	0.2	-	-	0.2
- Customer contracts	0.4	6.8	-	7.2
- Goodwill impairment	-	1.4	-	1.4

All non-current assets of the Group reside in the Group's country of domicile, the United Kingdom

3 EXCEPTIONAL ITEMS

	2023	2022
	£m	£m


Costs in relation to business acquisition activity	(1.6)	-
Insurance claims	-	1.5
Other costs re insurance claims	-	(0.8)
Total exceptional items	(1.6)	0.7

The exceptional items shown above are all included within administrative expenses.

Current year exceptional items

During the year, professional fees of £1.4 million were incurred relating to the acquisitions of Regency and Celtic Linen, of which £1.2 million were paid in the year. Further information relating to the acquisitions is provided in note 34. A further £0.2 million was incurred and paid in respect of other business acquisition related activities.

Prior year exceptional items

In 2020, a Workwear processing plant was destroyed as a result of a fire. Final settlement proceeds of £1.5 million were received in the prior year in respect of this insurance claim, relating to capital items. In addition, costs of £0.8 million were incurred in respect of the demolition of the destroyed site and preparing the site for sale.

4 FINANCE COST

	2023		2022
	£m		£m


Interest payable on bank loans and overdrafts		3.1	1.3
Gain on interest rate swaps not qualifying as hedges		-	(0.1)
Amortisation of bank facility fees		0.3	0.3
Finance costs on lease liabilities relating to IFRS 16 (note 15)		2.1	1.5
Notional interest on post-employment benefit obligations (note 16)		0.5	-
Total finance cost		6.0	3.0

Following the equity placing in June 2020 which raised £82.7 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 £0.6 million, as at 30 June 2020, was transferred from equity and recognised as an expense within finance costs. Thereafter, any subsequent change in the fair value of those derivatives was recognised directly within finance costs, resulting in a £0.1 million credit in 2022. The Group no longer has any interest rate swaps in place following the final outstanding interest rate swap ending on 8 January 2023.

5 ALTERNATIVE PERFORMANCE MEASURES (APMs)

Throughout this Preliminary Announcement, we refer to a number of APMs. A reconciliation of certain of the APMs, to the relevant statutory performance measure, is shown below. Other reconciliations can be found in notes 2, 8 and 17.

Adjusted profit before taxation	2023			2022
	£m			£m

Profit before taxation	37.6			30.3
Amortisation of intangible assets (excluding software amortisation)	5.3			7.2
Goodwill impairment	-			1.4
Exceptional items	1.6			(0.7)
Adjusted profit before taxation	44.5			38.2
Taxation thereon	(11.5)			(2.6)
Adjusted profit after taxation	33.0			35.6
Adjusted EBITDA		2023	2022
		£m	£m
Operating profit before amortisation of intangible assets (excluding software amortisation), goodwill impairment and exceptional items		50.5	41.2
Software amortisation		0.4	0.2
Property, plant and equipment depreciation		21.0	18.3
Right of use asset depreciation		6.6	5.9
Textile rental items depreciation		53.0	39.3
Adjusted EBITDA		131.5	104.9

6 TAXATION

	2023	2022
	£m	£m
Current tax
UK corporation tax credit for the year	1.7	-
Adjustment in relation to previous years	-	0.3
Current tax charge for the year	1.7	0.3

Deferred tax
Origination and reversal of temporary differences	8.4	3.3
Adjustment in relation to previous years	0.3	(2.1)
Deferred tax charge for the year	8.7	1.2
Total charge for taxation included in the Consolidated Income Statement	10.4	1.5

The tax charge for the year is higher than (2022: lower than) the effective rate of Corporation Tax in the UK of 23.5% (2022: 19%). A reconciliation is provided below:

	2023	2022
	£m	£m

Profit before taxation	37.6	30.3
Profit before taxation multiplied by the effective rate of Corporation Tax in the UK	8.8	5.8

Factors affecting taxation charge for the year:
Non-taxable income	-	(0.3)
Tax effect of expenses not deductible for tax purposes	0.8	1.1
Current year impact of super-deduction	(0.3)	(2.9)
Difference in current and deferred taxation rates	0.9	(0.4)
Tax rate differential on non-UK profits	(0.1)	-
Adjustments in relation to previous years	0.3	(0.9)
Adjustments in relation to previous years - super-deduction	-	(0.9)
Total charge for taxation included in the Consolidated Income Statement	10.4	1.5

6 TAXATION (continued)

Taxation in relation to the amortisation of intangible assets (excluding software amortisation) has decreased the charge for taxation on continuing operations by £1.0 million (2022: £1.1 million). Taxation in relation to exceptional items has decreased the charge for taxation on continuing operations by £0.1 million (2022: £nil).

The Finance Bill 2021 enacted provisions to increase the main rate of UK corporation tax to 25% from 6 April 2023 for businesses with profits of £250,000 or more. As such, deferred income tax balances at the balance sheet date have been measured at the tax rate expected to be applicable at the date the deferred income tax assets and liabilities are realised. Management has performed an assessment, for all material deferred income tax assets and liabilities, to determine the period over which the deferred assets and liabilities are forecast to be realised, which has resulted in an average deferred income tax rate of 25.0% (2022: 24.6%).

Deferred tax balances in relation to balances held in the Republic of Ireland have been recognised at 12.5%, in line with the prevailing rate of tax in 2023.

A capital allowance super-deduction, which offered 130% first year relief on qualifying main rate plant and machinery investments until 31 March 2023, has been included within the tax calculations for 31 December 2023. This allowance provides a permanent tax benefit on our Textile Rental items given their short life nature. The impact of the super-deduction to 31 December 2023 is a credit of £0.3 million (2022: credit of £3.8 million) of which £nil (2022: £0.9 million) is in relation to adjustments in the prior year recognised within the Consolidated Income Statement.

During the year, a deferred taxation charge of £2.2 million (2022: £2.6 million credit) has been recognised in Other Comprehensive Income in relation to post-employment benefit obligations.

7 DIVIDENDS

	2023	2022
Dividend per share
Final dividend proposed	1.90p	1.60p
Interim dividend proposed and paid	0.90p	0.80p

	2023	2022
Shareholders' funds committed	£m	£m
Final dividend proposed	7.9	6.8
Interim dividend proposed and paid	3.8	3.5

The Directors propose the payment of a final dividend in respect of the year ended 31 December 2023 of 1.9 pence per share. This will utilise Shareholders' funds of £7.9 million and will be paid, subject to Shareholder approval, on 10 May 2024 to Shareholders on the register of members on 11 April 2024. In accordance with IAS 10, there is no payable recognised at 31 December 2023 in respect of this proposed dividend. The trustee of the EBT has waived the entitlement to receive dividends on the Ordinary shares held by the trust.

8 EARNINGS PER SHARE	2023	2022
	£m	£m

Profit for the financial year from continuing operations attributable to Shareholders	27.2	28.8
Amortisation of intangible assets from continuing operations (net of taxation)	4.3	6.1
Goodwill impairment (net of taxation)	-	1.4
Exceptional costs from continuing operations (net of taxation)	1.5	(0.7)
Adjusted profit from continuing operations attributable to Shareholders	33.0	35.6
Profit from discontinued operations attributable to Shareholders	0.1	0.2
Total profit from all operations attributable to Shareholders	33.1	35.8

	No. of shares	No. of shares
Weighted average number of Ordinary shares	424,327,473	444,288,818
Potentially dilutive Ordinary shares	406,218	95,000
Diluted number of Ordinary shares	424,733,691	444,383,818

Basic earnings per share
From continuing operations	6.4p	6.5p
From discontinuing operations	-	-
From total operations	6.4p	6.5p
Adjustments for amortisation of intangible assets (continuing)	1.0p	1.4p
Adjustment for goodwill impairment (continuing)	-	0.3p
Adjustment for exceptional items (continuing)	0.4p	(0.2)p
Adjusted basic earnings per share (continuing)	7.8p	8.0p
Adjusted basic earnings per share (discontinued)	-	-
Adjusted basic earnings per share from total operations	7.8p	8.0p

Diluted earnings per share
From continuing operations	6.4p	6.5p
From discontinuing operations	-	-
From total operations	6.4p	6.5p
Adjustments for amortisation of intangible assets (continuing)	1.0p	1.4p
Adjustment for goodwill impairment (continuing)	-	0.3p
Adjustment for exceptional items (continuing)	0.4p	(0.2)p
Adjusted diluted earnings per share (continuing)	7.8p	8.0p
Adjusted diluted earnings per share (discontinued)	-	-
Adjusted diluted earnings per share from total operations	7.8p	8.0p

Adjusted diluted earnings per share excluding super-deduction (continuing)	7.7p	7.2p

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 and those held as Treasury shares awaiting cancellation, 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), goodwill impairment and exceptional items, all net of taxation, and are considered to show the underlying performance of the Group.

As disclosed in note 6, the current year total taxation credit benefited from £0.3 million (2022: £3.8 million) of tax credit resulting from the capital allowances super-deduction, which offered 130% first year relief on qualifying main rate plant and machinery investments until 31 March 2023. Due to the distortion this has on adjusted diluted earnings per share in 2023 and 2022, an adjusted diluted earnings per share value excluding this benefit has also been disclosed.

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. Potentially dilutive Ordinary shares have been treated as dilutive in both years, as their inclusion in the diluted earnings per share calculation decreases the 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.

9 GOODWILL

12	2023	2022
	£m	£m
Cost
Brought forward	135.2	135.2
Impact of foreign exchange translation	0.1	-
Business combinations (See note 20)	10.5	-
Carried forward	145.8	135.2

Accumulated impairment losses
Brought forward	1.4	-
Losses in the year	-	1.4
Carried forward	1.4	1.4

Carrying amount
Opening	133.8	135.2
Closing	144.4	133.8

During the year, the Group acquired 100% of the share capital of Regency Laundry Limited ('Regency') and 100% of the share capital of Harkglade Limited, together with its trading subsidiaries Celtic Linen Limited and Millbrook Linen Limited (together, 'Celtic Linen'). On acquisition, goodwill of £3.2 million and £7.3 million, respectively, has been recognised.

In accordance with UK-adopted international accounting standards, goodwill is not amortised, but instead is tested annually for impairment, or more frequently if there are indicators that an impairment has arisen, and carried at cost less accumulated impairment losses.

10 INTANGIBLE ASSETS

Capitalised software

	2023	2022
	£m	£m

Opening net book value	1.6	1.5
Additions	-	0.3
Amortisation	(0.4)	(0.2)
Closing net book value	1.2	1.6

Other intangible assets

	2023	2022
	£m	£m

Opening net book value	9.3	15.2
Additions	-	1.3
Foreign exchange differences	0.1	-
Business combinations (See note 20)	13.8	-
Amortisation	(5.3)	(7.2)
Closing net book value	17.9	9.3

Other intangible assets comprise of customer contracts and relationships and brands. During the year to 31 December 2023, the Group recognised £1.4 million and £12.4 million respectively in relation to the acquisition of Regency and Celtic Linen (2022: £nil).

11 PROPERTY, PLANT AND EQUIPMENT

	2023 £m	2022 £m

Opening net book value	119.6	113.3
Additions	26.9	24.8
Business combinations (See note 20)	6.4	-
Transfers from right of use assets	2.7	-
Depreciation	(21.0)	(18.3)
Disposals	(0.1)	(0.2)
Closing net book value	134.5	119.6

CAPITAL COMMITMENTS

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

	2023	2022
	£m	£m

Property, plant and equipment	27.2	11.1

12 RIGHT OF USE ASSETS

	2023 £m	2022 £m

Opening net book value	31.7	35.5
Additions	9.7	2.0
Business combinations (See note 20)	4.2	-
Transfers to property, plant and equipment	(2.7)	-
Reassessment / modification of assets previously recognised	3.7	0.1
Depreciation	(6.6)	(5.9)
Closing net book value	40.0	31.7

The reassessment / modification of assets relates to rental increases and extensions to lease terms that have been agreed during the year to 31 December 2023 and 31 December 2022 for property and commercial vehicle leases that were in place at the start of the relevant year.

The transfer of assets to property, plant and equipment represents the reclassification of the cost and associated depreciation of assets to property, plant and equipment where the lease was repaid in the year and the asset is now owned.

13 TEXTILE RENTAL ITEMS

	2023	2022
	£m	£m

Opening net book value	63.8	48.4
Additions	61.0	57.4
Business combinations (See note 20)	3.4	-
Depreciation	(53.0)	(39.3)
Special charges	(3.3)	(2.7)
Closing net book value	71.9	63.8

14 BORROWINGS

	2023		2022
	£m		£m
Current
Overdraft	8.7		5.3
Bank loans	(0.4)		(0.2)
	8.3		5.1

Non-current
Bank loans	63.0		14.7
	63.0		14.7
	71.3		19.8

The maturity of non-current bank loans is as follows:
- Between one and two years	-		15.0
- Between two and five years	63.2		-
- Unamortised issue costs of bank loans	(0.2)		(0.3)
	63.0		14.7

The currency of the outstanding bank loans is as follows:
- Sterling		32.0	15.0
- Euros		31.2	-
		63.2	15.0

At 31 December 2023, borrowings were secured and drawn down under a committed facility dated 8 August 2022. The facility comprises a £120.0 million revolving credit facility (including an overdraft) which runs to August 2026 with a one-year extension option with a further option, both with bank consent, to increase the facility by up to an additional £15.0 million.

Individual tranches are drawn down, in Sterling or Euros, for periods of up to six months at SONIA or Euribor rates of interest respectively, prevailing at the time of drawdown, plus the credit adjustment spread and the applicable margin. The margin on the facility ranges between 1.45% and 2.45% and was 1.45% at 31 December 2023. Margin is determined on the achievement of leverage ratios.

The secured bank loans are stated net of unamortised issue costs of £0.6 million (2022: £0.5 million) of which £0.4 million is included within current borrowings (2022: £0.2 million) and £0.2 million is included within non-current borrowings (2022: £0.3 million).

The Group has three net overdraft facilities for £5.0 million, £3.0 million and €1.5 million (£1.3 million) with its three principal bankers (2022: £5.0 million, £3.0 million and €nil).

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.

15 LEASE LIABILITIES

	2023 £m	2022 £m

Opening liabilities	34.3	37.8
New leases recognised	9.5	2.0
Business combinations (See note 20)	3.3	-
Reassessment / modification of leases previously recognised	3.7	0.1
Lease payments	(9.7)	(7.1)
Finance costs	2.1	1.5
Closing liabilities	43.2	34.3

Of which are:
Current lease liabilities	5.5	5.1
Non-current lease liabilities	37.7	29.2
Closing liabilities	43.2	34.3

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

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.

A full actuarial valuation of the JGDBS was carried out as at 30 September 2022 and has been updated to 31 December 2023 by an independent qualified actuary. The updated actuarial valuation at 31 December 2023 showed that the scheme has a deficit of £nil (2022: £9.4 million). During the year, no employer or employee contributions were made (2022: £nil).

The schedule of contributions put in place on 4 August 2020, which superseded all earlier versions, required deficit recovery payments of £1.9 million per annum to be paid up to and including December 2026. Following discussions with the Trustee of the scheme following the finalisation of the full actuarial valuation, deficit recovery payments ceased from 31 October 2023 in accordance with a new schedule of contributions dated 31 October 2023. Deficit recovery payments of £1.6 million (2022: £1.9 million) were made to the Scheme during the year.

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

	2023 £m	2022 £m

Gross post-employment benefit obligation	0.3	10.2
Deferred income tax asset thereon	(0.1)	(2.6)
Net liability	0.2	7.6

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

	2023 £m	2022 £m

Opening gross post-employment benefit obligation	(10.2)	(2.1)
Notional interest	(0.5)	-
Deficit recovery payments	1.6	1.9
Remeasurement and experience gains / (losses)	8.8	(10.0)
Closing gross post-employment benefit obligation	(0.3)	(10.2)

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 December 2022	Cash Flow	Non-cash Changes	Foreign Exchange Adjustments	At 31 December 2023
	£m	£m	£m	£m	£m

Debt due within one year	0.2	2.0	(1.8)	-	0.4
Debt due after more than one year	(14.7)	(47.6)	(0.3)	(0.4)	(63.0)
Lease liabilities (See note 15)	(34.3)	7.6	(16.5)	-	(43.2)
Total debt and lease financing	(48.8)	(38.0)	(18.6)	(0.4)	(105.8)
Cash and cash equivalents	0.8	0.1	-	-	0.9
Net debt	(48.0)	(37.9)	(18.6)	(0.4)	(104.9)

	At 31 December 2021	Cash Flow	Non-cash Changes	Foreign Exchange Adjustments	At 31 December 2022
	£m	£m	£m	£m	£m

Debt due within one year	0.1	0.3	(0.2)	-	0.2
Debt due after more than one year	(18.0)	3.4	(0.1)	-	(14.7)
Lease liabilities (See note 15)	(37.8)	5.6	(2.1)	-	(34.3)
Total debt and lease financing	(55.7)	9.3	(2.4)	-	(48.8)
Cash and cash equivalents	(4.4)	5.2	-	-	0.8
Net debt	(60.1)	14.5	(2.4)	-	(48.0)

17 ANALYSIS OF NET DEBT (continued)

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

	2023	2022
	£m	£m
Cash (Current assets)	9.6	6.1
Overdraft (Borrowings, Current liabilities)	(8.7)	(5.3)
	0.9	0.8

Lease liabilities are comprised of the following balance sheet amounts:

	2023	2022
	£m	£m

Amounts due within one year (Lease liabilities, Current liabilities)	(5.5)	(5.1)
Amounts due after more than one year (Lease liabilities, Non-current liabilities)	(37.7)	(29.2)
	(43.2)	(34.3)

18 RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT

	2023	2022
	£m	£m

Increase in cash in the year	0.1	5.2
(Increase) / decrease in debt and lease financing	(38.0)	9.3
Change in net debt resulting from cash flows	(37.9)	14.5
Debt acquired through business acquisitions	(5.1)	-
Lease liabilities recognised during the period	(13.2)	(2.1)
Non-cash movement in unamortised bank facility fees	(0.3)	(0.3)
Foreign exchange adjustments	(0.4)	-
Movement in net debt	(56.9)	12.1
Opening net debt	(48.0)	(60.1)
Closing net debt	(104.9)	(48.0)

19 SHARE CAPITAL

		2023		2022
Issued and Fully Paid	Shares	£m	Shares	£m
Ordinary shares of 10p each:
- At start of year	439,151,346	43.9	445,256,639	44.5
- Share buybacks	(24,736,223)	(2.5)	(6,105,293)	(0.6)
- At end of year	414,415,123	41.4	439,151,346	43.9

In respect of the two share buyback programmes which were running during the year, 24,619,289 (2022: 6,222,227) Ordinary shares with a total nominal value of £2,461,929 (2022: £622,222) were bought back by the Company and cancelled for a total consideration including transaction costs of £29.8 million (2022: £5.7 million) which represents an average price of 121.0p per share (2022: 91.1p). The total shares repurchased across the two share buyback programmes to 31 December 2023 represent 6.9% of the Company's issued share capital outstanding immediately prior to the commencement of the first share buyback programme.

At 31 December 2022, 6,105,293 Ordinary shares with a total nominal value of £610,529 had been cancelled. The remaining 116,934 Ordinary shares were held as Treasury shares until they were subsequently cancelled, and paid for, on 3 January 2023.

Cash payments in respect of the above transactions were (debited) / credited as follows:

	2023	2022
	£m	£m

Share capital	(2.5)	(0.6)
Capital redemption reserve	2.5	0.6
Retained earnings	(29.9)	(5.6)
	(29.9)	(5.6)

20 BUSINESS COMBINATIONS

On 13 February 2023, the Group acquired 100% of the share capital of Regency Laundry Limited ('Regency') for a net consideration of £5.3 million (being gross consideration of £5.75 million on a debt free, cash free basis, subject to a normalised level of working capital) plus associated fees. Since acquisition, Regency has generated a profit of £0.6 million on revenue of £6.2 million. Had the business been acquired at the start of the period, it is estimated that a profit of £0.5 million would have been generated on revenue of £6.8 million.

On 31 August 2023, the Group acquired 100% of the share capital of Harkglade Limited, together with its trading subsidiaries Celtic Linen Limited and Millbrook Linen Limited (together, 'Celtic Linen'), for a net consideration of £25.2 million (being a gross consideration of £27.1 million on a debt free, cash free basis, subject to a locked box mechanism and a normalised level of working capital) plus associated fees. Since acquisition, Celtic Linen has generated a profit of £0.8 million on revenue of £10.3 million. Had the business been acquired at the start of the period, it is estimated that a profit of £2.3 million would have been generated on revenue of £30.3 million.

The provisional fair value of assets and liabilities acquired are as follows:

	Regency	Celtic Linen	Total
	£m	£m	£m

Intangible assets - Goodwill	3.2	7.3	10.5
Intangible assets - Customer contracts and brands	1.4	12.4	13.8
Property, plant and equipment	1.0	5.4	6.4
Right of use assets	1.5	2.7	4.2
Textile rental items	0.5	2.9	3.4
Reimbursement asset	-	0.1	0.1
Unissued textile rental stock	-	0.5	0.5
Trade and other receivables	0.8	5.4	6.2
Cash and cash equivalents	0.2	0.6	0.8
Trade and other payables	(1.1)	(6.0)	(7.1)
Borrowings	(0.2)	(1.6)	(1.8)
Lease Liabilities	(1.6)	(1.7)	(3.3)
Provisions	-	(0.7)	(0.7)
Current income tax liability	-	(0.1)	(0.1)
Deferred income tax liability	(0.4)	(2.0)	(2.4)
Net consideration	5.3	25.2	30.5

Goodwill represents the deferred income tax arising on the recognition of the customer contracts, customer relationships and brand names, plus the expected benefits to the wider Group arising from the acquisition. None of the acquired goodwill is expected to be deductible for tax purposes.

Regency has been included within the HORECA reporting segment and is a standalone CGU. Celtic Linen has been included in the HORECA reporting segment and has formed an 'Ireland' CGU along with our 'Johnsons Belfast' business.

Cash flows from business acquisition activity

The cash flows in relation to business acquisition activity are summarised below:

	2023			2022
	£m	£m	£m	£m

Costs in relation to business acquisition activity	(1.6)		-
Trade and other payables	0.2		-
Net cash used in operating activities		(1.4)		-

Net consideration payable	(30.5)		-
Cash acquired	0.8		-
Net cash used in investing activities		(29.7)		-

Cash flows in relation to business acquisition activity		(31.1)	-	-

21 DISCONTINUED OPERATIONS

During the year, a provision against deferred consideration of £0.1 million (2022: £0.2 million) relating to the sale of the Facilities Management division in August 2013 was released.

The Income Statement from discontinued operations, included within the Consolidated Income Statement, is as follows:

	2023	2022
	£m	£m
Operating profit	0.1	0.2
Taxation	-	-
Profit for the year from discontinued operations	0.1	0.2

Cash flows from discontinued operations, included within the Consolidated Statement of Cash Flows, are as follows:

	2023	2022
	£m	£m
Net cash generated from operating activities	0.1	0.2

22 CONTINGENT LIABILITIES

The Group operates from a number of sites across the UK and the Republic of Ireland. 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 £28.0 million to the Trustee ranking pari passu with up to £155.0 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 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 £0.2 million per annum, reduced pro rata as guarantees are released. Such liabilities are not expected to give rise to any significant loss.

23 EVENTS AFTER THE REPORTING PERIOD

There were no events occurring after the balance sheet date which should be disclosed in accordance with IAS 10, 'Events after the reporting period'.

24 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 twice a year, or more frequently should new matters arise. Throughout 2023, the overall risk environment remained largely unchanged from that reported within the Group's 2022 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 and Political Conditions

§ Cost Inflation

§ Failure of Strategy

§ Recruitment, Retention and Motivation of Employees

§ Loss of a Processing Facility

§ Competition and Disruption

§ Information Technology Failures and Cyber Security

§ Pandemic or Other National Crisis

§ Health & Safety

§ Compliance and Fraud

§ Insufficient Processing Capacity

§ 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 2023 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.

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

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

Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have to prepare the Group and Company financial statements in accordance with UK-adopted international accounting standards. Under company law the 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 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;

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

§ state whether applicable UK-adopted international accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group and Company's transactions and disclose with reasonable accuracy at any time the financial position of the Group and Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Group and Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

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

The Directors are responsible for preparing the Annual Report in accordance with applicable law and regulations. Having taken advice from the Audit Committee, the Directors consider that the Annual Report and the financial statements, taken as a whole, provides the information necessary to assess the Group and Company's performance, business model and strategy and is fair, balanced and understandable.

To the best of our knowledge:

§ the Group financial statements, prepared in accordance with UK-adopted international accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation, taken as a whole; and

§ the Strategic Report and Directors' Report include a fair review of the development and performance of the business and the position of the Company and the undertakings included in the consolidation, taken as a whole, together with a description of the principal risks and uncertainties that they face.

The Directors confirm that:

§ so far as each Director is aware, there is no relevant audit information of which the Group and Company's auditor is unaware; and

§ the Directors 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 Company's auditor is aware of that information.

26 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 2023 Annual Report will be made available on the Group's website (www.jsg.com) on or before 18 March 2024.

27 APPROVAL

The Preliminary Announcement was approved by the Board of Directors on 4 March 2024.

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Johnson Service Group (JSG)

Friday, 20th December 2024

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