Preliminary Results

RNS Number : 0770S

Johnson Service Group PLC

07 March 2023

7 March 2023

AIM: JSG

Johnson Service Group PLC

('JSG' or 'the Group')

Preliminary Results for the Year Ended 31 December 2022

Strong performance and well placed for continued growth

FINANCIAL PERFORMANCE

§ Total revenue increased by 42.1% to £385.7 million (2021: £271.4 million).

§ Organic revenue up 39.0% compared to 2021 and 2.7% compared to 2019.

§ Adjusted EBITDA¹ of £104.9 million (2021: £67.9 million) with a margin of 27.2% (2021: 25.0%).

§ Adjusted Operating Profit¹ of £41.2 million (2021: £12.7 million).

§ Operating Profit of £33.3 million (2021: £8.4 million).

§ Adjusted Profit before Taxation² of £38.2 million (2021: £9.4 million).

§ Profit before Taxation of £30.3 million (2021: £5.1 million).

§ Full year dividend of 2.4 pence (2021: nil).

§ Strong balance sheet and capacity for further investment.

§ Ongoing £27.5 million share buyback programme with £11.4 million deployed to date.

§ The Board expects the result for 2023 to be in line with market expectations.

OPERATIONAL HIGHLIGHTS

§ HORECA volumes improved during the year to reach 93% of normal in the final quarter; we expect volumes to continue to increase through 2023.

§ We continue to build strong relationships and strategic partnerships within HORECA, with over 23,500 rooms installed in 2022.

§ Workwear customer retention levels remained strong at 94.3%.

§ Price increases and other actions implemented throughout 2022 to help offset cost inflation.

§ Further mitigating actions are ongoing to offset cost pressures.

§ Acquisition of Regency Laundry Limited on 13 February 2023.

§ New leasehold site secured to expand HORECA capacity in the South East.

SUSTAINABILITY

§ Inaugural Sustainability Report published in August 2022 building on The Johnsons Way launched in February 2022.

§ Additional water recycling plant at our Cornwall site is currently being installed.

§ Employee Engagement and Diversity surveys completed.

§ Carbon, water and waste reduction targets set for 2023.

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:

"The improved performance we are reporting today demonstrates the resilience of JSG's business model, operational expertise and strength of our relationships with our customers and business suppliers, alongside the hard work of our employees.

We have invested £22.4 million in our sites to not only improve productivity and processes but also to attract and retain employees with enhanced working environments.

Post the year end we supplemented our organic growth plans with the acquisition of a luxury hotel linen rental business, in line with our acquisition strategy, and the signing of a new lease to increase our capacity in the South East for HORECA. We will continue to assess investment opportunities which will provide supplementary quality services and earnings enhancing outcomes.

We are confident that the actions we have taken have placed the Group in a favourable position as markets continue to recover. After considering the current economic environment, including the recent, and possibly further, increases in UK interest rates and the subsequent impact on our cost of borrowing, the Board expects the result for the year to be in line with market expectations."

SELL-SIDE ANALYSTS' MEETING

A presentation for sell-side analysts will be held today at 10.30am, details of which will be distributed by Camarco. A copy of the presentation will be available on the Company's website ( www.jsg.com ) following the meeting.

ENQUIRIES

Johnson Service Group PLC
Peter Egan, CEO
Yvonne Monaghan, CFO
Tel: 020 3757 4992/4981 (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 other 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 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 19.

TRADING PERFORMANCE

Revenue

T otal revenue for the year to 31 December 2022 increased by 42.1% to £385.7 million (2021: £271.4 million). Organic revenue growth was 39.0% over 2021 and 2.7% higher than 2019, reflecting both a return of volume in hospitality and price increases implemented throughout the year.

Financial Results

Our 2022 results reflect, albeit to a lessening extent, the continuing impact that COVID-19 has had on the Group, particularly within our Hotel, Restaurant and Catering (' HORECA') division, together with the high inflationary pressures on our cost base, particularly in respect of energy.

Adjusted EBITDA increased by 54.5% to £104.9 million (2021: £67.9 million) giving a margin of 27.2% (2021: 25.0%). As expected, we saw this improve from the 24.3% achieved in the first half of the year. Adjusted operating profit was £41.2 million (2021: £12.7 million), an increase of 224.4%, whilst adjusted profit before taxation increased by 306.4% to £38.2 million (2021: £9.4 million). The price increases we have implemented have helped offset cost increases and these are ongoing into 2023.

The exceptional credit of £0.7 million (2021: exceptional credit of £6.7 million) relates to the receipt of £1.5 million from the insurer 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 £33.3 million (2021: £8.4 million) whilst statutory profit before taxation, after amortisation of intangible assets (excluding software amortisation) of £7.2 million (2021: £11.0 million), goodwill impairment of £1.4 million (2021: £nil) and the exceptional credits referred to above, increased to £30.3 million (2021: £5.1 million).

Adjusted diluted earnings per share was 8.0 pence (2021: 2.2 pence) and includes the benefit of the capital allowances super-deduction which offers 130% first year relief on qualifying capital spend. Excluding the part of this benefit which is a permanent reduction in the corporation tax charge, adjusted diluted earnings per share was 7.2 pence (2021: 1.7 pence).

Dividend reflecting confidence in the future

The Board reinstated an interim dividend of 0.8 pence per share at the time of announcing interim results. We are pleased to recommend a final dividend of 1.6 pence per share, taking the full year dividend to 2.4 pence per share (2021: nil). Dividend cover was 3 times, based on Adjusted EPS excluding super-deduction.

Acquisition of Regency Laundry Limited

In line with our stated acquisition strategy, the Group has continued to seek out and acquire businesses which expand our market coverage and are earnings enhancing. On 13 February 2023, we completed the acquisition of the entire issued share capital of Regency Laundry Limited ('Regency') for a cash consideration of £5.75 million on a debt free, cash free basis and subject to an adjustment for normalised working capital.

Regency, which has 87 employees and operates from a 26,000 square foot leasehold processing facility in Corsham, operates in the luxury/bespoke 4 and 5 star hotel market in the South of England and regularly delivers some 200,000 pieces of linen per week to its customers.

This acquisition provides the Group with a presence in the luxury/bespoke sector of the HORECA market and will continue to operate under the Regency brand. We plan to expand capacity on site and continue to grow its presence in this market.

The unaudited revenue of Regency in the year ending 31 December 2022, as reported in its management accounts, was £6.1 million.

OPERATIONAL REVIEW

Our Businesses

The Group comprises of Textile Rental businesses which trade through a number of very well recognised brands, servicing the UK's Workwear and HORECA (Hotel, Restaurant and Catering) sectors. The 'Johnsons Workwear' brand predominantly provides workwear rental and laundry services to corporates across all industry sectors. Within HORECA, 'Stalbridge' and 'London Linen' provide premium linen services to the restaurant, hospitality and corporate events market and Johnsons Hotel Linen, our high-volume linen business, primarily serves the corporate independent and budget hotel market. Also within HORECA, our Northern Ireland business, Lilliput, additionally serves a number of healthcare customers. In February 2023 we acquired Regency which will add further to the HORECA business, supplying more luxury/bespoke linen to the luxury market.

The year began with the continuing impact of COVID-19, particularly in our HORECA business. As volumes were beginning to recover into the spring we, like many UK businesses, experienced cost inflation and volatility, most notably around energy costs. We have continued to manage these and work with our customers to agree a number of price increases. This is ongoing into 2023.

Attracting new employees is a continuous challenge, and we have completed a strategic review of our current procedures in certain areas. With a more collaborative approach to marketing and recruitment, we have improved the onboarding process with the implementation of new procedures for induction, training and further learning and development opportunities. This will be complemented by the successful Johnsons Academy which will continue to provide a development and succession strategy for our employees. Our learning and development teams are also actively promoting and supporting the business with the recruitment of apprentices in various roles across the business. Each business has conducted a further employment engagement survey in respect of 2022 and the various results are noted later in this report.

Energy

Energy costs (comprising gas, electricity and diesel) have remained highly volatile throughout the year and continue to be so. Costs for 2022, at £36.4 million, were significantly higher than the equivalent period in 2019 of £21.6 million and represented 9.4% of revenue (2019: 6.2%).

We have continued our policy of fixing gas and electricity prices and, as at the end of February 2023, we had fixed over 69% of our anticipated electricity usage and 80% of our anticipated gas usage for the first half of 2023 and 58% and 62% for the second half of 2023. In addition, we have hedged 75% of our anticipated diesel requirement across 2023.

Looking further ahead, we will continue to lock in prices as opportunities allow. For 2024, we currently have, based on our anticipated usage, 24% gas, 41% electricity and 50% diesel at fixed prices, with reducing amounts into 2025.

Workwear Division

Operating as Johnsons Workwear, we provide workwear rental and laundry services to some 36,000 customers in the UK, ranging from small local businesses to the largest companies covering food related and other industrial sectors.

The total revenue for the Workwear division increased by 4.4% to £134.6 million (2021: £128.9 million). Organic revenue increased by 3.7%. Adjusted EBITDA was £46.6 million (2021: £46.3 million) with a margin of 34.6% (2021: 35.9%). Adjusted operating profit was £21.9 million (2021: £22.5 million) and included a £1.1 million credit from the finalisation of the Exeter insurance claim in respect of additional revenue cost incurred in 2020 and 2021.

The customer service teams have remained focused on maintaining the quality of service and proactively managed to achieve additional service sales along with the renewal of a significant number of existing customers. We have, however, seen some of our customer base reduce their workwear spend as they seek to reduce their costs.

The business continues to provide excellent levels of service to our existing and new customers which is reflected in our customer retention remaining strong at 94.3%. The annual independent customer satisfaction survey results of 85% remains positive and again reported us as maintaining our position of being the market sector leader in providing a first-class service to our customers. Our industry leading service offering has assisted us in winning new business and regaining a large multi-site engineering account, commencing in April 2023.

The sales team has been restructured and brought in line with the operational regions, encouraging a more collaborative approach in actively engaging with prospective customers. The teams are gaining momentum with increased activity, sales and more robust pipelines. This is supported by the success of the National Accounts service and sales teams who have renewed significant national account customers for a further 3-year term. Our in-house call centre continues to provide valued support to our sales team. 27.5% of all new sales won came from new to rental.

The successful implementation of a new laundry management system provides new functionality and opportunities to introduce new practices and procedures not only to improve our efficiencies but also to enhance the customer experience and improve the working environment for our employees.

We remain committed to employee engagement and welfare programmes and creating an environment that is inclusive to all employees. Following the previous employee engagement survey, a number of initiatives were implemented to improve employee wellbeing including the introduction of awareness programmes along with confidential direct assistance being made available. A further survey was commissioned in early 2023 showing an overall score of 81%.

In response to rising costs, the operational teams remain focused upon the continuous improvement of our processes and delivering further enhancements to our operational efficiencies. Despite the challenges around operational cost, the business is committed to an ongoing capital investment programme. Benefitting from advancements in laundry equipment technology, we have successfully installed several automated systems and have identified further opportunities whereby additional systems have been commissioned and will be installed throughout 2023. This is complemented with further investment in folding and finishing equipment along with the continual upgrading of office, canteen and general working environments. The business has also implemented significant price increases to help mitigate inflationary pressures and this will continue into 2023.

Our new site in Exeter, which was commissioned in September 2021, is performing in line with our expectations and benefits from automated sorting systems which, as previously stated, are in the process of being rolled out to other sites.

Appreciating our environmental impact, the business continues to focus on the reduction of our consumption of natural resources. Several initiatives have been implemented to reduce our water and energy usage with a continuous heat and water recovery unit installed in Lancaster and an energy recovery unit in Perth, with a commitment to purchase more units in 2023.

In conjunction with our suppliers, we are looking at alternative ways to improve and manage our waste streams and have identified several opportunities to reduce our waste to landfill. We are also actively engaged with customers to reduce their requirements for single use plastic packaging, along with sourcing alternative recyclable plastics. The initial trials are encouraging.

The introduction of a sustainable and recyclable range of garments was successfully launched across the business in 2022. Initial sales are encouraging with interest from our customers increasing. Trials are also underway regarding the recycling of our used garments; six sites are actively engaged in a further feasibility study with an expectation of implementation in 2023.

HORECA Division

The total revenue for the HORECA division increased by 76.2% to £251.1 million (2021: £142.5 million). Volumes have continued to increase throughout the year albeit were impacted significantly in the first quarter due to the Omicron Covid variant. Organic growth was 70.9% and benefitted from price increases being implemented across the business in order to help offset the high level of cost inflation experienced.

Adjusted EBITDA for the year increased by 140.5% to £63.0 million (2021: £26.2 million) with a margin of 25.1% (2021: 18.4%). The adjusted EBITDA margin in the second half of the year was 28.2%, compared to 21.1% in the first half. Adjusted operating profit was £24.1 million (2021: £5.2 million loss).

Hotel, Restaurant and Catering, which includes Johnsons Stalbridge and London Linen, has recovered well after two years of pandemic led disruption.

Service and quality levels returned to our previous high standards, helping the business to maintain high levels of customer retention. This was evidenced in our excellent annual customer survey result of 86.5%, placing us in the top quartile of the business service sector. Service and quality were also aided by an easing of the recruitment difficulties during 2022 and a return to a less volatile marketplace for our customers and their linen requirements.

Customer demand and sales opportunities have been strong, leading to some localised capacity challenges. However, we have moved customers between operating sites to manage this volume and created additional capacity by the investment of a new sortation system and additional ironing lines in Wrexham and Grantham. Upgrades to chemical dosing equipment in a number of our sites have improved quality and delivered savings through bulk deliveries.

In addition, we are progressing plans to expand our capacity in the South East and have signed a new 20-year lease for an additional site. It is anticipated that the site will open in the second half of 2024. The new site will free up capacity at existing production facilities through the relocation of work, moving processing closer to customers. The capital investment is expected to amount to £16.0 million with cash spend incurred over 2023 and 2024.

Further investments have been made in replacement finishing equipment across the estate to increase efficiency, maintain our high quality and reduce energy use. A water recycling plant has successfully been in use returning a significant proportion of our used water in our Shaftesbury location and we are paper banding many products instead of using plastic wrap. Electric vehicles have been deployed for our engineering teams and a selection of our delivery fleet now run on HVO, which is carbon free.

Post-covid, we have been very active in supporting and seeking feedback from our employees. Accordingly, engagement with our people has shown a significant improvement with our employee engagement survey score increasing to 85% (2021: 79%).

Within Hotel Linen, our ability to predict and efficiently manage customer volumes remained challenging throughout the year, largely due to operational changes within our customer base including the number of linen items included in a room lay-up and the frequency of linen changes, both having reduced when compared to pre-Covid.

Our key focus was to deliver, on time and in full, to our customer base throughout 2022 and consequently employee recruitment and retention was paramount. Numerous initiatives have been introduced to attract and retain employees including guaranteed hours during low demand weeks, hourly rate increases, flexible working patterns and other financial incentives. Various benefits have also been introduced to enhance wellbeing, work/life balance and learning and development opportunities, as well as the launch of a new induction process. We continue to work closely with His Majesty's Prison Service, providing employment for prisoners qualifying for Release on Temporary Licence.

The National Accounts team continue to develop strong relationships with our hotel groups who have recognised the unprecedented cost pressures during price increase discussions. Successfully building strong relationships and strategic partnerships is reflected in significant growth, both in organic and new sales, with over 23,500 rooms installed in 2022, some at short notice and with exceptional feedback on contract implementation. 8,000 of the installs were in the final quarter of 2022 and a further 2,900 rooms have been installed in the first two months of 2023, bringing the total number of rooms being serviced by Hotel Linen to over 200,000. We were also pleased to renew the contract with the Belfast group of hospitals for a further seven years.

The recent investment in our largest facility in Bourne successfully met our objectives of improving both efficiency and capacity, as did the investment at our site in Belfast. The lease of an additional unit on the Belfast site will further improve employee welfare facilities and the packing area and the planned replacement of washing equipment in early 2023 will underpin growth in market share.

Investment has also focused on improving energy and water usage to support sustainability objectives, with 2023 plans including innovative investment in robotic machinery and dynamic production data capture.

Our field-based teams rolled out the new 'Linen Room' during the year, an online customer portal, which gives access to our linen ordering system. The portal scored a Customer Satisfaction Index of 89.7% in our independent Customer Satisfaction Survey which is very encouraging. The method for reporting and ordering stock through the portal is easier, complemented with improved customer business reports. In addition, the introduction and utilisation of our new Customer Service App provides an improved platform to gather customer feedback and identify areas for improvement. Overall, our Customer Satisfaction Survey increased to 85.2% reflecting the excellent contribution from all our teams.

Strategic relationships with business suppliers continue to develop, as demonstrated by the consistent supply of products and services to us, despite the challenges relating to increased cost and availability of products or components. This has been of particular note with the supply of vehicles during 2022 where we have taken delivery of 31 commercial vehicles. Our partnership approach has proved successful when negotiating with suppliers and customers alike.

The employee engagement survey for 2022 demonstrated an improvement in all four key focus areas (wellbeing increasing from 77% to 78%, work patterns from 74% to 79%, work/life balance from 78% to 80%, career development from 75% to 78%) and an overall score of 82%. A significant amount of engagement initiatives, planned activities and investment in developing our employees has taken place. Our focus continues in supporting our employees to perform to their best potential in their current roles, as well as develop for the future.

ENVIRONMENTAL & SOCIAL RESPONSIBILITY

The Board, as a whole, has overall responsibility for environmental, social and governance matters and we recognise our duty to stakeholders to operate the business in an ethical and responsible manner. We 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 targets for 2030 together with our objectives and plans for 2022. This was followed by the publication of our Inaugural Sustainability Report in August 2022. Both documents can be found on our website at www.jsg.com.

For the Group to realise the true value of its sustainability contribution, the sustainability programme must be embedded across all Group functions and operations. To this end we have spent much of 2022 refreshing our strategy and communicating our plans across the Group. Embedding the programme into everyday business is ongoing however, during this period we have made some significant strides forwards to better understanding those impacts and laying robust foundations that will support our Vision 2030 goals. Further details of our achievements during 2022 and our targets for 2023, ongoing initiatives and actions for the future will be set out within the Group's 2022 Annual Report.

EMPLOYEES

Our employees are key to the ongoing success of our business and 2022 has been another challenging year for each and every one of them.

The Board would like to thank all of our employees for their support, hard work and significant contribution to the success of the business during the last 12 months. The teamwork and determination demonstrated in order to deliver a professional and on time service to our customers is a credit to all of them and we thank them for their continued support.

OUTLOOK

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

Whilst customer behaviour remains difficult to predict and inflationary pressures continue to persist, we have a resilient business model to help mitigate these challenges. We also have some protection through the fixing of a proportion of our energy costs. We continue to secure and implement price increases across our customer base which, along with additional volume already secured which will better utilise our labour resource and improve processing efficiency, will help offset cost inflation.

Through the improving cash flow, we have been able to support our capital investment plans and increase in rental inventory, embark upon a share buyback programme and, in February 2023, complete another acquisition. There is positive momentum moving into 2023 and we will continue to identify opportunities to strengthen our position in the market as well as continuing to focus on delivering outstanding customer service and investing in both our employees and our laundry facilities.

After considering the current economic environment, including the recent, and possibly further, increases in UK interest rates and the subsequent impact on our cost of borrowing, the Board expects the result for the year to be in line with market expectations.

Peter Egan

Chief Executive Officer

6 March 2023

FINANCIAL REVIEW

FINANCIAL RESULTS

T otal revenue for the year to 31 December 2022 increased to £385.7 million (2021: £271.4 million).

Adjusted EBITDA was £104.9 million (2021: £67.9 million) giving a margin of 27.2% (2021: 25.0%) and in-line with management expectations, improving from the 24.3% margin achieved in the first half of 2022.

The analysis of the Group results across the segments shows the impact of the pandemic on the adjusted EBITDA of our different divisions and the recovery evident in 2022.

	2022			2021
	Revenue	Adjusted EBITDA	Margin	Revenue	Adjusted EBITDA	Margin
	£m	£m	%	£m	£m	%
Workwear	134.6	46.6	34.6	128.9	46.3	35.9
HORECA	251.1	63.0	25.1	142.5	26.2	18.4
Central Costs	-	(4.7)	-	-	(4.6)	-
Group	385.7	104.9	27.2	271.4	67.9	25.0

Statutory operating profit was £33.3 million (2021: £8.4 million) whilst adjusted operating profit was £41.2 million (2021: £12.7 million).

The total finance cost was £3.0 million (2021: £3.3 million) and included £1.5 million (2021: £1.5 million) of bank interest and hedging costs, £1.5 million (2021: £1.6 million) of interest in respect of IFRS 16 liabilities and £nil (2021: £0.2 million) in respect of notional interest on pension liabilities.

A net exceptional credit of £0.7 million (2021: £6.7 million credit) comprises the recognition of £1.5 million of insurance proceeds relating to the final receipt for capital items and property costs in relation to the 2020 Exeter plant fire and costs of £0.8 million in relation to Exeter site clearance costs.

Adjusted profit before taxation was £38.2 million (2021: £9.4 million). Statutory profit before taxation, after amortisation of intangible assets (excluding software amortisation) of £7.2 million (2021: £11.0 million) and an exceptional credit of £0.7 million (2021: £6.7 million), was £30.3 million (2021: £5.1 million).

FINANCING

Total net debt (excluding IFRS 16 liabilities) at the end of the year was £13.7 million (December 2021: £22.3 million) reflecting the improved trading performance and after an outflow of £5.6 million in respect of the ongoing share buyback. Including IFRS 16 liabilities, net debt at December 2022 was £48.0 million (December 2021: £60.1 million).

The Group remains well funded with access to a committed revolving credit facility of £85.0 million which matures in August 2025. The terms of the facility provide an option to extend the term for up to a further two years and an option to increase the facility by up to a further £50.0 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 2022 was 0.5 times. Interest cover compares Adjusted EBIT 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 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 adjusted profit before taxation, was 6.8% (2021: tax credit (5.3)%). The rate is significantly below the headline corporation tax rate of 19% due to a prior year credit combined with the impact of the change in future tax rates and of the capital allowances super-deduction which offers 130% first year relief on qualifying main rate plant and machinery investments until 31 March 2023. The impact of the part of the super-deduction which is a permanent reduction in the corporation tax charge in 2022, is estimated to be a £3.8 million credit (2021: £2.5 million credit) to corporation tax.

A tax refund of £3.5 million (2021: refund of £0.5 million) was received during the year in respect of prior year tax losses. Due to the impact of both tax losses carried forward and the continuing impact of the capital allowance super-deduction, we are expecting to pay some corporation tax in respect of 2023 increasing towards more normal levels thereafter.

DIVIDEND

The Board was pleased to reinstate dividend payments, declaring an interim dividend of 0.8 pence per share in September 2022. The proposed final dividend of 1.6 pence per share brings the total dividend for 2022 to 2.4 pence per share.

The final dividend, if approved by Shareholders, will be paid on 12 May 2023 to Shareholders on the register at close of business on 14 April 2023. The ex-dividend date is 13 April 2023. It remains the Board's current intention to reduce dividend cover from the current level of 3 times 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 £39.1 million compared to an outflow of £0.5 million in 2021. Of this, we invested £22.4 million (2021: £24.4 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 was £1.5 million (2021: £5.3 million) received as part of the insurance claim in respect of capital items.

Free cash flow in 2022 was impacted by the net working capital outflow of £8.2 million (2021: £18.3 million), largely reflective of an increase in trade receivables, as HORECA volumes recovered and price increases were secured.

INVESTMENT IN TEXTILE RENTAL ITEMS

Spend on textile rental items amounted to £52.5 million (2021: £41.8 million). The increase reflects the return to more normal levels of spend. The relationships we have built with our chosen workwear and linen suppliers have ensured continuity of supply in a timely manner to give the best service to both existing and new customers.

CAPITAL INVESTMENT AND ACQUISITION

We have continued to invest in plant and equipment, spending £22.1 million in the year plus a further £0.3 million on software. The focus of the spend has been to update equipment to achieve a combination of reduced energy and water consumption and improved productivity and capacity.

The investment of £5.75 million in Regency Laundry Limited in February 2023 is a further step in expanding our range of services. We are assessing the opportunities to invest further in this business over the coming months.

DEFINED BENEFIT PENSION SCHEME LIABILITIES

As at 31 December 2022, the Scheme's assets had reduced by £73.0 million, to £148.2 million, after paying out benefits of £10.9 million during the year. Scheme liabilities reduced by £64.7 million to £157.6 million. The net deficit, including deferred taxation, has increased to £7.1 million (2021: £0.9 million) due largely to the significant downturn in financial markets felt across almost all asset classes in 2022. The increase in the net deficit at December 2022 will result in an estimated net notional interest cost of £0.5 million in 2023 (2022: £nil).

The turmoil in the gilt markets in the final quarter of 2022 adversely impacted the value of the Scheme's assets, although the Scheme's liabilities also fell as a result of falling gilt prices. The Scheme uses a Liability Driven Investment (LDI) strategy to partially mitigate the impact on the Scheme's deficit if interest rates fall or inflation expectations rise. Due to the gilt market crisis, the interest rate and inflation hedge ratios were reduced from the target 85% to approximately 70% at December 2022. However, we remain confident that the Scheme's investment allocation is appropriate for its objectives and will be reviewed in detail once the triennial actuarial valuation as at 30 September 2022 is finalised.

We have agreed with the Trustee that the existing deficit recovery payment of £1.9 million per annum will continue in equal monthly instalments until the next review following the completion of the triennial valuation as at 30 September 2022 which will be later this year.

CAPITAL STRUCTURE AND SHARE BUYBACK PROGRAMME

The Group maintains a strong Balance Sheet, with net assets having increased to £284.6 million (2021: £272.4 million).

The Group's medium to long-term intention is to return the capital structure such that we target leverage of 1x - 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 a periodic review of capital structure:

§ maintaining a strong balance sheet;

§ continuing capital investment to increase processing capacity and efficiency;

§ appropriate accretive acquisitions;

§ operating a progressive dividend policy; and

§ distributing any surplus cash to Shareholders.

The share buyback programme announced in September 2022 is ongoing. As at 31 December 2022 we had utilised cash of £5.6 million on the programme with a further £5.8 million utilised up to 6 March 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 2024. 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 from Continuing Operations. In addition, for years 2021 and 2022, the adjusted diluted earnings per share excluding the impact of the capital allowance super-deduction will also form part of the assessment. 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

6 March 2023

CONSOLIDATED INCOME STATEMENT		Year ended 31 December 2022	Year ended 31 December 2021
	Note	£m	£m


Revenue	2	385.7	271.4

Impairment loss on trade receivables		(0.9)	(0.4)
All other costs		(351.5)	(262.6)
Operating profit	2	33.3	8.4

Operating profit before amortisation of intangible assets (excluding software amortisation), goodwill impairment and exceptional items	2	41.2	12.7

Amortisation of intangible assets (excluding software amortisation)		(7.2)	(11.0)

Goodwill impairment		(1.4)	-

Exceptional items	3	0.7	6.7
Operating profit	2	33.3	8.4

Finance cost	4	(3.0)	(3.3)
Profit before taxation		30.3	5.1
Taxation (charge) / credit	6	(1.5)	1.8
Profit for the year from continuing operations		28.8	6.9
Profit / (loss) for the year from discontinued operations		0.2	(0.3)
Profit for the year attributable to equity holders		29.0	6.6

EARNINGS PER SHARE	8

Basic earnings per share
- From continuing operations		6.5p	1.6p
- From discontinued operations		-	(0.1)p
From total operations		6.5p	1.5p

Diluted earnings per share
- From continuing operations		6.5p	1.6p
- From discontinued operations		-	(0.1)p
From total operations		6.5p	1.5p

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 2022			Year ended 31 December 2021
	Note		£m	£m
Profit for the year			29.0	6.6
Items that will not be subsequently reclassified to profit or loss
Remeasurement and experience (losses) / gains on post-employment benefit obligations	18		(10.0)	11.0
Taxation in respect of remeasurement and experience losses / (gains)			2.5	(2.1)
Deferred taxation rate change in respect of remeasurement and experience losses / (gains)			0.1	-
Items that may be subsequently reclassified to profit or loss
Cash flow hedges (net of taxation) - fair value gains			1.4	1.3
- transfers to administrative expenses			(2.2)	-
Total other comprehensive (loss) / income for the year			(8.2)	10.2
Total comprehensive income for the year			20.8	16.8

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 2020		44.4	16.3	1.6	0.6	(1.0)	192.7	254.6

Profit for the year		-	-	-	-	-	6.6	6.6
Other comprehensive income		-	-	-	-	1.3	8.9	10.2
Total comprehensive income for the year		-	-	-	-	1.3	15.5	16.8

Share options (value of employee services)		-	-	-	-	-	0.5	0.5
Purchase of own shares by EBT		-	-	-	-	-	(0.1)	(0.1)
Issue of share capital		0.1	0.5	-	-	-	-	0.6
Transactions with Shareholders recognised directly in Shareholders' equity		0.1	0.5	-	-	-	0.4	1.0

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

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 2022 the EBT held 9,024 shares (2021: 9,024). At the same time, and pursuant to the ongoing share buyback programme, the Group also held 116,934 treasury shares (2021: nil). These were subsequently cancelled on 3 January 2023. See note 21 for further details.

CONSOLIDATED BALANCE SHEET		As at 31 December 2022	As at 31 December 2021
	Note	£m	£m Restated*
Assets
Non-current assets
Goodwill	9	133.8	135.2
Intangible assets	10	10.9	16.7
Property, plant and equipment	11	119.6	113.3
Right of use assets	12	31.7	35.5
Textile rental items	13	63.8	48.4
Trade and other receivables		0.3	0.3
Derivative financial assets		-	0.3
		360.1	349.7

Current assets
Inventories		1.8	2.2
Trade and other receivables		61.0	47.9
Reimbursement assets	14	4.5	4.3
Current income tax assets		-	3.6
Cash and cash equivalents		6.1	5.2
		73.4	63.2

Liabilities
Current liabilities
Trade and other payables		75.7	63.7
Borrowings	15	5.1	9.5
Current income tax liabilities		0.2	-
Lease liabilities	16	5.1	5.2
Derivative financial liabilities		0.4	0.1
Provisions	17	5.1	4.8
		91.6	83.3

Non-current liabilities
Post-employment benefit obligations	18	10.2	2.1
Deferred income tax liabilities		1.8	3.3
Trade and other payables		0.3	0.3
Borrowings	15	14.7	18.0
Lease liabilities	16	29.2	32.6
Derivative financial liabilities		0.3	-
Provisions	17	0.8	0.9
		57.3	57.2
Net assets		284.6	272.4

Equity
Capital and reserves attributable to the company's shareholders
Share capital	21	43.9	44.5
Share premium		16.8	16.8
Merger reserve		1.6	1.6
Capital redemption reserve		1.2	0.6
Hedge reserve		(0.5)	0.3
Retained earnings		221.6	208.6
Total equity		284.6	272.4

* A £4 .5 million provision has been recognised as at 31 December 2022 in respect of third-party claims made against the Group, but which are indemnified under the terms of its insurance policies. A corresponding reimbursement asset of £4.5 million has been recognised as at 31 December 2022. As the Group expects, on average, insurance claims to be settled within one year, which is driven by a review of the historic claims data, recognition of these balances is made within current assets and current liabilities. The impact on the brought forward balance sheet at 1 January 2021 would be the inclusion of a £2.5 million provision and a corresponding reimbursement asset of £2.5 million. The balance sheet at 31 December 2021 has been restated to recognise a provision of £4.3 million and a corresponding reimbursement asset of £4.3 million.

The notes on pages 21 to 38 form an integral part of these condensed consolidated financial statements. The condensed consolidated financial statements on pages 16 to 38 were approved by the Board of Directors on 6 March 2023 and signed on its behalf by:

Yvonne Monaghan

Chief Financial Officer

CONSOLIDATED STATEMENT OF CASH FLOWS	Note	Year ended 31 December 2022 £m	Year ended 31 December 2021 £m
Cash flows from operating activities
Profit for the year		29.0	6.6
Adjustments for:
Taxation charge / (credit) - continuing	6	1.5	(1.8)
- discontinued		-	0.3
Total finance cost	4	3.0	3.3
Depreciation		63.5	55.1
Amortisation	10	7.4	11.1
Goodwill impairment	9	1.4	-
(Profit) / loss on disposal of property, plant and equipment		(0.2)	0.1
Profit on termination of lease liabilities		-	(0.2)
Decrease / (increase) in inventories		0.4	(0.8)
Increase in trade and other receivables		(12.9)	(15.4)
Increase / (decrease) in trade and other payables		4.3	(2.1)
Deficit recovery payments in respect of post-employment benefit obligations		(1.9)	(1.9)
Share-based payments		0.8	0.5
Decrease in provisions		(0.1)	(2.0)
Commodity swaps not qualifying as hedges		(0.1)	(0.3)
Income re insurance claims		(1.5)	(5.3)
Business acquisition costs charged to the income statement		-	0.1
Cash generated from operations		94.6	47.3
Interest paid		(3.6)	(3.2)
Taxation received		3.5	0.5
Net cash generated from operating activities		94.5	44.6

Cash flows from investing activities
Acquisition of businesses (including acquired overdrafts)		-	(4.8)
Disposal of business costs		-	(3.6)
Purchase of other intangible assets		(1.3)	-
Purchase of property, plant and equipment		(22.1)	(24.2)
Income re insurance claims		1.5	5.3
Purchase of software		(0.3)	(0.2)
Proceeds from sale of property, plant and equipment		0.4	-
Purchase of textile rental items		(52.5)	(41.8)
Proceeds received in respect of special charges	13	2.7	2.4
Net cash used in investing activities		(71.6)	(66.9)

Cash flows from financing activities
Proceeds from borrowings		48.0	29.0
Repayment of borrowings		(51.0)	(12.5)
Capital element of leases		(5.6)	(5.7)
Purchase of own shares by EBT		-	(0.1)
Share buyback	21	(5.6)	-
Proceeds from issue of Ordinary shares	21	-	0.6
Dividends paid to company shareholders	7	(3.5)	-
Net cash (used in) / generated from financing activities		(17.7)	11.3

Net increase / (decrease) in cash and cash equivalents		5.2	(11.0)
Cash and cash equivalents at beginning of year		(4.4)	6.6
Cash and cash equivalents at end of year	19	0.8	(4.4)

Cash and cash equivalents comprise:

Cash	6.1	5.2
Overdraft	(5.3)	(9.6)
Cash and cash equivalents at end of year	0.8	(4.4)

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.

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 in conformity with the requirements of the Companies Act 2006.

The financial information has been prepared using accounting policies consistent with those set out in the 2021 Annual Report except as disclosed in notes 14 and 17 of this Preliminary Announcement.

The financial information set out within this Preliminary Announcement does not constitute the Company's statutory accounts for the years ended 31 December 2022 or 31 December 2021 within the meaning of Section 434 of the Companies Act 2006, but is derived from those accounts.

Statutory accounts for 2021 have been delivered to the Registrar of Companies, and those for 2022 will be delivered as soon as practicable but not later than 30 April 2023. 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 condensed consolidated financial statements. The process and key judgments in coming to this conclusion are set out below. The going concern status of the Company is intrinsically linked to that of the Group.

The Group's business activities, together with details of the financial position of the Group, its cash flows, liquidity position and borrowing facilities, are described in the Chief Executive's Operating Review and 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 2024 (the assessment period). The Directors consider this to be a reasonable period for the going concern assessment as it enables us 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 60% of 2022 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 required 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 £85.0 million (the 'Facility') which matures in August 2025. The terms of the Facility provide an option to extend the term for up to a further two years and an option to increase the Facility by up to a further £50.0 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 2024. 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.

NOTES TO THE PRELIMINARY ANNOUNCEMENT (continued)

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 continuing operating profit/(loss) 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 super-deduction', an additional measure introduced for 2021 and 2022 only 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 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 super-deduction - note 8

§ Adjusted net debt - note 19

2 SEGMENT ANALYSIS

Segment information is presented based on the Group's management and internal reporting structure as at 31 December 2022.

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 (now including London Linen), Hotel Linen and Lilliput businesses, each of which are a separate operating segment.

The CODM's rationale for aggregating the Stalbridge, Hotel Linen and Lilliput 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 24 to 25.

Workwear

Supply and laundering of workwear garments and protective wear.

HORECA

Linen services for the hotel, restaurant and catering sector.

§ Workwear

§ Stalbridge

§ Hotel Linen

§ Lilliput

All Other Segments

Comprising of central and Group costs.

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

	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	0.8	1.2	-	2.0
- 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

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

2 SEGMENT ANALYSIS (continued)

Year ended 31 December 2021	Workwear	HORECA	All Other Segments	Total
	£m	£m	£m	£m
Revenue
Rendering of services	125.8	142.3	-	268.1
Sale of goods	3.1	0.2	-	3.3
Total revenue	128.9	142.5	-	271.4

Result
Operating profit / (loss) before amortisation of intangible assets (excluding software amortisation) and exceptional items	22.5	(5.2)	(4.6)	12.7
Amortisation of intangible assets (excluding software amortisation)	-	(11.0)	-	(11.0)
Exceptional items	3.0	(0.1)	3.8	6.7
Operating profit / (loss)	25.5	(16.3)	(0.8)	8.4
Total finance cost				(3.3)
Profit before taxation				5.1
Taxation credit				1.8
Profit for the year from continuing operations				6.9
Loss for the year from discontinued operations				(0.3)
Profit for the year attributable to equity holders				6.6

	Workwear	HORECA		All Other	Total
	(*Restated)	(*Restated)		Segments	(*Restated)
	£m	£m		£m	£m
Balance sheet information
Segment assets	139.1	263.6		1.1	403.8
Unallocated assets: Current income tax assets					3.6
Derivative financial assets					0.3
Cash and cash equivalents					5.2
Total assets					412.9

Segment liabilities	(38.8)	(65.7)		(3.0)	(107.5)
Unallocated liabilities: Bank borrowings					(27.5)
Derivative financial liabilities					(0.1)
Post-employment benefit obligations					(2.1)
Deferred income tax liabilities					(3.3)
Total liabilities					(140.5)

Other information
Non-current asset additions
- Property, plant and equipment	12.7	9.8		-	22.5
- Right of use assets	0.4	0.6		-	1.0
- Textile rental items	19.6	27.1		-	46.7
- Capitalised software	-	0.1		-	0.1
Depreciation, impairment and amortisation expense
- Property, plant and equipment	5.5	11.3		-	16.8
- Right of use assets depreciation	2.2	3.9		-	6.1
- Textile rental items depreciation	16.1	16.1		-	32.2
- Capitalised software	-	0.1		-	0.1
- Customer contracts	-		11.0	-	11.0

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

* £4.3 million of reimbursement assets and a corresponding provision for liabilities has been recognised as at 31 December 2021. Refer to notes 14 and 17 for further information.

3 EXCEPTIONAL ITEMS

	2022	2021
	£m	£m


Costs in relation to business acquisition activity	-	(0.1)
Insurance claims	1.5	5.9
Other costs re insurance claims	(0.8)	(0.6)
Income from Parent Company Guarantees	-	1.5
Total exceptional items	0.7	6.7

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

Current year exceptional items

Insurance claims and other costs

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 current year in respect of this insurance claim, relating to capital items.

Costs of £0.8 million have been incurred in the current year in respect of the demolition of the destroyed site and preparing the site for sale.

Prior year exceptional items

Costs in relation to business acquisition activity

During the prior year, professional fees of £0.1 million were paid relating to the acquisition of Lilliput (Dunmurry) Limited.

Insurance claims and other costs

In 2020, a Workwear processing plant was destroyed as a result of a fire. Interim insurance proceeds of £5.2 million were received during the prior year. Costs of £0.4 million were incurred for initial works to demolish the damaged building along with associated professional fees of £0.2 million.

A further Workwear processing plant was damaged as a result of flooding during the previous year. Final settlement proceeds of £0.7 million were received during the prior year in respect of this insurance claim.

Income from Parent Company Guarantees

During the period of ownership of the Facilities Management division the Company had given guarantees over the performance of contracts entered into by the division. As part of the disposal of the division the purchaser has agreed to pursue the release or transfer of obligations under the Parent Company guarantees and this is in process. The Sale and Purchase Agreement contains an indemnity from the purchaser to cover any loss in the event a claim is made prior to release. A further clause within the Sale and Purchase Agreement obligated the purchaser to make an additional one-off payment in the event the business was subsequently sold. On 16 November 2021, the business was sold and therefore a payment of £1.5 million was made to the Group in respect of this obligation.

4 FINANCE COST

	2022		2021
	£m		£m

Finance cost:
- Interest payable on bank loans and overdrafts		1.3	1.4
- Gain on interest rate swaps not qualifying as hedges		(0.1)	(0.2)
- Amortisation of bank facility fees		0.3	0.3
- Finance costs on lease liabilities relating to IFRS 16 (note 16)		1.5	1.6
- Notional interest on post-employment benefit obligations (note 18)		-	0.2
Total finance cost		3.0	3.3

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. The change in fair value on interest rate swaps has been recognised directly within finance costs resulting in a credit of £0.1 million (2021: £0.2 million).

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 19.

Adjusted profit before taxation	2022			2021
	£m			£m

Profit before taxation	30.3			5.1
Amortisation of intangible assets (excluding software amortisation)	7.2			11.0
Goodwill impairment	1.4			-
Exceptional items	(0.7)			(6.7)
Adjusted profit before taxation	38.2			9.4
Taxation thereon	(2.6)			0.5
Adjusted profit after taxation	35.6			9.9
Adjusted EBITDA		2022	2021
		£m	£m
Operating profit before amortisation of intangible assets (excluding software amortisation), goodwill impairment and exceptional items		41.2	12.7
Software amortisation		0.2	0.1
Property, plant and equipment depreciation		18.3	16.8
Right of use asset depreciation		5.9	6.1
Textile rental items depreciation		39.3	32.2
Adjusted EBITDA		104.9	67.9

6 TAXATION

	2022	2021
	£m	£m
Current tax
UK corporation tax credit for the year	-	-
Adjustment in relation to previous years	0.3	(0.8)
Current tax charge / (credit) for the year	0.3	(0.8)

Deferred tax
Origination and reversal of temporary differences	3.3	(3.0)
Changes in tax rate	-	1.6
Adjustment in relation to previous years	(2.1)	0.4
Deferred tax charge / (credit) for the year	1.2	(1.0)
Total charge / (credit) for taxation included in the Consolidated Income Statement	1.5	(1.8)

The tax charge / (credit) for the year is lower than (2021: lower than) the effective rate of Corporation Tax in the UK of 19% (2021: 19%). A reconciliation is provided below:

	2022	2021
	£m	£m

Profit before taxation	30.3	5.1
Profit before taxation multiplied by the effective rate of Corporation Tax in the UK	5.8	1.0

Factors affecting taxation charge for the year:
Non-taxable income	(0.3)	(0.4)
Tax effect of expenses not deductible for tax purposes	1.1	0.5
Current year impact of super-deduction	(2.9)	(2.5)
Difference in current and deferred taxation rates	(0.4)	(1.6)
Changes in tax rate	-	1.6
Adjustments in relation to previous years	(0.9)	(0.4)
Adjustments in relation to previous years - super-deduction	(0.9)	-
Total charge / (credit) for taxation included in the Consolidated Income Statement	1.5	(1.8)

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 £1.1 million (2021: taxation credit increased by £1.6 million). Taxation in relation to exceptional items has increased the charge for taxation on continuing operations by £nil (2021: taxation credit decreased by £0.3 million).

The rate of UK corporation tax is currently 19.0%. 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 24.6% (2021: 23.3%).

The impact of the change in deferred tax rate is £nil (2021: £1.6 million charge) in the Consolidated Income Statement.

A capital allowance super-deduction, which offers 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 2022. 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 2022 is a credit of £3.8 million (2021: credit of £2.5 million) of which £0.9 million is in relation to adjustments in the prior year.

The further prior year adjustment of £0.9 million relates to, in the main, the finalisation of the tax position in respect of insurance claims following the fire and flood at two sites in 2020 along with a final tax position relating to an indemnity settlement in 2021. Information regarding the final settlement of these claims only became available during 2022 to enable the prior year tax computations to be finalised.

During the year, a deferred taxation credit of £2.6 million (2021: £2.1 million charge) has been recognised in Other Comprehensive Income in relation to post-employment benefit obligations.

7 DIVIDENDS

	2022	2021
Dividend per share
Final dividend proposed	1.60p	-
Interim dividend proposed and paid	0.80p	-

	2022	2021
Shareholders' funds committed	£m	£m
Final dividend proposed	6.9	-
Interim dividend proposed and paid	3.5	-

The Directors propose the payment of a final dividend in respect of the year ended 31 December 2022 of 1.6 pence per share. Based upon the number of shares in issue as at the date of this report, the final dividend will utilise Shareholders' funds of £6.9 million and will be paid, subject to Shareholder approval, on 12 May 2023 to Shareholders on the register of members on 14 April 2023. Given the ongoing share buyback programme however, the Directors anticipate that the actual distribution will ultimately be less than the amount stated above. The trustee of the EBT has waived the entitlement to receive dividends on the Ordinary shares held by the trust. In accordance with IAS 10 there is no payable recognised at 31 December 2022 in respect of this proposed dividend.

8 EARNINGS PER SHARE	2022	2021
	£m	£m

Profit for the financial year from continuing operations attributable to Shareholders	28.8	6.9
Amortisation of intangible assets from continuing operations (net of taxation)	6.1	9.4
Goodwill impairment (net of taxation)	1.4	-
Exceptional costs from continuing operations (net of taxation)	(0.7)	(6.4)
Adjusted profit from continuing operations attributable to Shareholders	35.6	9.9
Profit / (loss) from discontinued operations attributable to Shareholders	0.2	(0.3)
Total profit from all operations attributable to Shareholders	35.8	9.6

	No. of shares	No. of shares
Weighted average number of Ordinary shares	444,288,818	444,939,982
Potentially dilutive Ordinary shares	95,000	206,112
Diluted number of Ordinary shares	444,383,818	445,146,094

Basic earnings per share
From continuing operations	6.5p	1.6p
From discontinuing operations	-	(0.1)p
From total operations	6.5p	1.5p
Adjustments for amortisation of intangible assets (continuing)	1.4p	2.1p
Adjustment for goodwill impairment (continuing)	0.3p	(1.5)p
Adjustment for exceptional items (continuing (2021: discontinued))	(0.2)p	0.1p
Adjusted basic earnings per share (continuing)	8.0p	2.2p
Adjusted basic earnings per share (discontinued)	-	-
Adjusted basic earnings per share from total operations	8.0p	2.2p

Diluted earnings per share
From continuing operations	6.5p	1.6p
From discontinuing operations	-	(0.1)p
From total operations	6.5p	1.5p
Adjustments for amortisation of intangible assets (continuing)	1.4p	2.1p
Adjustment for goodwill impairment (continuing)	0.3p	(1.5)p
Adjustment for exceptional items (continuing (2021: discontinued))	(0.2)p	0.1p
Adjusted diluted earnings per share	8.0p	2.2p
Adjusted diluted earnings per share (continuing)	8.0p	2.2p
Adjusted diluted earnings per share (discontinued)	-	-
Adjusted diluted earnings per share from total operations	8.0p	2.2p

Adjusted diluted earnings per share excluding super-deduction (continuing)	7.2p	1.7p

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.

The current year total taxation credit has benefited from £3.8 million of additional credit resulting from the capital allowance super-deduction, which offers 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 2022 and 2021, an adjusted diluted earnings per share value excluding this benefit has 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 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

	2022	2021
	£m	£m
Cost
Brought forward	135.2	130.9
Business combinations	-	4.3
Carried forward	135.2	135.2

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

Carrying amount
Opening	135.2	130.9
Closing	133.8	135.2

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.

Following the increase in the pre-tax discount rate to 12.40% at June 2022 from 10.51% at December 2021, the Group recognised a goodwill impairment loss of £1.4 million in respect of Lilliput. Fair value less costs to dispose of the CGU was also considered however, the value in use was deemed to be the higher recoverable value. Following the recently completed investment undertaken at Lilliput, the most recent financial forecasts for the Group reflect revised expected future cash flows for Lilliput. Accordingly, no further impairment was required as at 31 December 2022 and, in fact, significant headroom exists. However, under UK adopted international accounting standards, a goodwill impairment cannot be reversed.

10 INTANGIBLE ASSETS

Capitalised software

	2022	2021
	£m	£m

Opening net book value (as previously reported)	1.5	1.5
Additions	0.3	0.1
Amortisation	(0.2)	(0.1)
Closing net book value	1.6	1.5

Other intangible assets

	2022	2021
	£m	£m

Opening net book value	15.2	25.0
Additions	1.3	-
Business combinations	-	1.2
Amortisation	(7.2)	(11.0)
Closing net book value	9.3	15.2

Other intangible assets comprise of customer contracts and relationships. During the year to 31 December 2022, the Group acquired customer contracts valued at £1.3 million (2021: £nil).

11 PROPERTY, PLANT AND EQUIPMENT

	2022 £m	2021 £m

Opening net book value	113.3	107.2
Additions	24.8	22.5
Business combinations	-	0.5
Depreciation	(18.3)	(16.8)
Disposals	(0.2)	(0.1)
Closing net book value	119.6	113.3

CAPITAL COMMITMENTS

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

	2022	2021
	£m	£m

Property, plant and equipment	11.1	10.9

12 RIGHT OF USE ASSETS

	2022 £m	2021 £m

Opening net book value	35.5	38.5
Additions	2.0	1.0
Business combinations	-	0.8
Reassessment / modification of assets previously recognised	0.1	1.3
Depreciation	(5.9)	(6.1)
Closing net book value	31.7	35.5

The reassessment / modification of assets relates to rental increases and extensions to lease terms that have been agreed during the year to 31 December 2022 and 31 December 2021 for property and commercial vehicle leases that were in place at the start of the relevant year.

13 TEXTILE RENTAL ITEMS

	2022	2021
	£m	£m

Opening net book value	48.4	35.6
Additions	57.4	46.7
Business combinations	-	0.7
Depreciation	(39.3)	(32.2)
Special charges	(2.7)	(2.4)
Closing net book value	63.8	48.4

14 REIMBURSEMENT ASSETS

	2022	2021
	£m	£m
		Restated

Reimbursement assets	4.5	4.3

£4.3 million of reimbursement assets have been recognised as at 31 December 2021 in respect of the reimbursement of third party claims made against the Group, which are indemnified under the terms of its insurance policies. A corresponding provision for liabilities of £4.3 million has been recognised as at 31 December 2021.

As the Group expects, on average, insurance claims to be settled within one year which is driven by a review of the historic claims data, recognition of these balances is made within current assets and current liabilities.

The Group recognises a reimbursement asset in respect of third-party claims made against the Group, but which under the terms of its insurance policies, the Group is indemnified. All of the expenditure required to settle such claims will be reimbursed by the insurer under the terms of the policies, and therefore it is virtually certain that reimbursement will be received.

15 BORROWINGS

	2022	2021
	£m	£m
Current
Overdraft	5.3	9.6
Bank loans	(0.2)	(0.1)
	5.1	9.5

Non-current
Bank loans	14.7	18.0
	14.7	18.0
	19.8	27.5

At 31 December 2022, borrowings were secured and drawn down under a committed facility dated 8 August 2022. The facility comprises an £85.0 million rolling credit facility (including an overdraft) which runs to August 2025 with two, one-year, extension options with a further option, both with bank consent, to increase the facility by up to an additional £50.0 million.

Individual tranches are drawn down, in sterling, for periods of up to six months at SONIA rates of interest 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 2022. Margin is determined on the achievement of leverage ratios.

The secured bank loans are stated net of unamortised issue costs of £0.5 million (2021: £0.1 million) of which £0.2 million is included within current borrowings (2021: £0.1 million) and £0.3 million is included within non-current borrowings (2021: £nil).

The Group has two net overdraft facilities for £5.0 million and £3.0 million with two of its principal bankers (2021: £5.0 million and £3.0 million).

As at 31 December 2022, the Group has in place the following hedging arrangements which have the effect of replacing SONIA with fixed rates as follows:

§ for £15.0 million of borrowings, SONIA plus 0.1193% Credit Adjustment Spread is replaced with 0.805% from 8 January 2020 to 9 January 2023.

Following the equity placing in June 2020, hedge accounting was discontinued at that date as the Group no longer had any loans for the Group's interest rate swaps to economically hedge. Hedge accounting has not been resumed.

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.

16 LEASE LIABILITIES

	2022 £m	2021 £m

Opening liabilities	37.8	40.6
New leases recognised	2.0	1.0
Business combinations	-	0.8
Reassessment / modification of leases previously recognised	0.1	1.3
Lease payments	(7.1)	(7.3)
Disposals	-	(0.2)
Finance costs	1.5	1.6
Closing liabilities	34.3	37.8

Of which are:
Current lease liabilities	5.1	5.2
Non-current lease liabilities	29.2	32.6
Closing liabilities	34.3	37.8

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

17 PROVISIONS

	2022 £m	2021 £m
		Restated

Opening provisions	5.7	5.8
Additions	1.2	2.0
Utilised during the year	(1.0)	(0.5)
Released during the year	-	(1.6)
Closing provisions	5.9	5.7

Of which are:
Current provisions	5.1	4.8
Non-current provisions	0.8	0.9
Closing provisions	5.9	5.7

A £4.3 million provision has been recognised as at 31 December 2021 in respect of third party claims made against the Group, but which are indemnified under the terms of its insurance policies. A corresponding reimbursement asset of £4.3 million has also been recognised as at 31 December 2021. As the Group expects, on average, insurance claims to be settled within one year, which is driven by a review of the historic claims data, recognition of these balances is made with current assets and current liabilities. The impact on the brought forward balance sheet as at 1 January 2021 would be the inclusion of a £2.5 million provision and a corresponding reimbursement asset of £2.5 million. The balance of the provision as at 31 December 2022 is £4.5 million.

Other provisions relate to property-related obligations and self-insurance costs.

18 POST-EMPLOYMENT BENEFIT OBLIGATIONS

The Group has applied the requirements of IAS 19, 'Employee Benefits' (revised June 2011) to its employee pension schemes and post-retirement healthcare benefits. The Group operates a defined benefit pension scheme, the Johnson Group Defined Benefit Scheme ('JGDBS'). The JGDBS was closed to future accrual on 31 December 2014.

As part of the Group's objective to reduce its overall pension deficit, deficit recovery payments of £1.9 million (2021: £1.9 million) were paid to the JGDBS. A remeasurement and experience loss of £10.0 million has been recognised in the year to 31 December 2022 (2021: £11.0 million gain).

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

	2022 £m	2021 £m

Gross post-employment benefit obligation	10.2	2.1
Deferred income tax asset thereon	(2.6)	(0.4)
Net liability	7.6	1.7

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

	2022 £m	2021 £m

Opening gross post-employment benefit obligation	(2.1)	(14.9)
Notional interest	-	(0.2)
Deficit recovery payments	1.9	1.9
Utilisation of post-retirement healthcare obligation	-	0.1
Remeasurement and experience (losses) / gains	(10.0)	11.0
Closing gross post-employment benefit obligation	(10.2)	(2.1)

19 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 2021	Cash Flow	Non-cash Changes	At 31 December 2022
	£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 16)	(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)

	At 31 December 2020	Cash Flow	Non-cash Changes	At 31 December 2021
	£m	£m	£m	£m

Debt due within one year	0.2	1.5	(1.6)	0.1
Debt due after more than one year	0.2	(18.0)	(0.2)	(18.0)
Lease liabilities (See note 16)	(40.6)	5.7	(2.9)	(37.8)
Total debt and lease financing	(40.2)	(10.8)	(4.7)	(55.7)
Cash and cash equivalents	6.6	(11.0)	-	(4.4)
Net debt	(33.6)	(21.8)	(4.7)	(60.1)

19 ANALYSIS OF NET DEBT (continued)

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

	2022	2021
	£m	£m
Cash (Current assets)	6.1	5.2
Overdraft (Borrowings, Current liabilities)	(5.3)	(9.6)
	0.8	(4.4)

Lease liabilities are comprised of the following balance sheet amounts:

	2022	2021
	£m	£m

Amounts due within one year (Lease liabilities, Current liabilities)	(5.1)	(5.2)
Amounts due after more than one year (Lease liabilities, Non-current liabilities)	(29.2)	(32.6)
	(34.3)	(37.8)

20 RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT

	2022	2021
	£m	£m

Increase / (decrease) in cash in the year	5.2	(11.0)
Decrease / (increase) in debt and lease financing	9.3	(10.8)
Change in net debt resulting from cash flows	14.5	(21.8)
Debt acquired through business acquisitions	-	(2.3)
Lease liabilities recognised during the period	(2.1)	(2.1)
Non-cash movement in unamortised bank facility fees	(0.3)	(0.3)
Movement in net debt	12.1	(26.5)
Opening net debt	(60.1)	(33.6)
Closing net debt	(48.0)	(60.1)

21 SHARE CAPITAL

			2022		2021
Issued and Fully Paid		Shares	£m	Shares	£m
Ordinary shares of 10p each:
- At start of year		445,256,639	44.5	444,211,100	44.4
- Share buybacks	Note a	(6,105,293)	(0.6)	-	-
- New shares issued	Note b	-	-	1,045,539	0.1
- At end of year		439,151,346	43.9	445,256,639	44.5

Note a: In September 2022, the Group announced that it was commencing a share buyback programme to repurchase up to £27.5 million (excluding expenses) of its own shares. During the year, 6,222,227 (2021: nil) ordinary shares with a total nominal value of £622,222 (2021: £nil) were bought back by the Company for a total consideration including transaction costs of £5.7 million, of which £5.6 million was expended during the year with £0.1 million remaining within Trade and other payables at 31 December 2022 (2021: £nil), which represents an average price of 91.4p per share. The total shares purchased to 31 December 2022 represent 1.4% of the Company's share capital. At 31 December 2022, 6,105,293 (2021: nil) ordinary shares with a total nominal value of £610,529 (2021: £nil) had been cancelled. The remaining 116,934 ordinary shares were held as Treasury shares until they were subsequently cancelled on 3 January 2023.

Note b: In the prior year, 560,000 Ordinary shares were allotted to the EBT at nominal value to be used in relation to employee share option exercises. The total nominal value received was £56,000. At the time of allotment, the EBT already held 8,388 Ordinary shares of 10 pence each which, together with the 560,000 newly allotted Ordinary shares of 10 pence each, were used to satisfy the exercise of 559,364 LTIP options. In addition, 485,539 SAYE Scheme options were exercised with a total nominal value of £48,554.

21 SHARE CAPITAL (continued)

The total payments made / proceeds received on allotment in respect of the above transactions were (debited) / credited as follows:

	2022	2021
	£m	£m

Share capital	(0.6)	0.1
Share premium	-	0.5
Capital redemption reserve	0.6	-
Retained earnings	(5.6)	-
	(5.6)	0.6

22 DISCONTINUED OPERATIONS

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

Details of transactions in the prior year were disclosed in the Group's 2021 Annual Report.

Income Statement

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

	2022	2021
	£m	£m
Adjusted operating profit from discontinued operations	0.2	-
Exceptional items - Property provision	-	1.6
- Indemnity settlement	-	(1.6)
Operating profit	0.2	-
Taxation	-	(0.3)
Retained profit / (loss) from discontinued operations	0.2	(0.3)

Cash Flows

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

	2022	2021
	£m	£m
Net cash generated from operating activities	0.2	-
Net cash used in investing activities	-	(3.6)
Net cash flow from / (used in) discontinued operations	0.2	(3.6)

23 EVENTS AFTER THE REPORTING PERIOD

On 13 February 2023, we completed the acquisition of the entire issued share capital of Regency Laundry Limited ('Regency') for a cash consideration of £5.75 million on a debt free, cash free basis and subject to an adjustment for normalised working capital.

The unaudited revenue of Regency in the year ending 31 December 2022, as reported in its management accounts, was £6.1 million.

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 at its March and August meetings, or more frequently should new matters arise. Throughout 2022, the overall risk environment remained largely unchanged from that reported within the Group's 2021 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

§ Pandemic or Other National Crisis

§ Health & Safety

§ Compliance and Fraud

§ Insufficient Processing Capacity

§ Customer Sales and Retention

§ Information Systems and Technology

§ 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 2022 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 2022 Annual Report will be made available on the Group's website (www.jsg.com) on or before 20 March 2023.

27 APPROVAL

The Preliminary Announcement was approved by the Board of Directors on 6 March 2023.

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